Chapter 3 Section 7: Assessing the Risks of Material Misstatement

Question 1

What steps are taken to assess the risk of material misstatement?

IMACPA

Answer 1

Internal control
Material misstatement
Assessed level of risk
Control tests
Perform substantive procedures
Audit evidence appropriateness

Question 2

What are the risk assessment procedures?

Answer 2

Inquiries
Analytical Procedures
Observation and Inspection
Risk Assessment Discussion
Other Procedures

Question 3

What is the objective of analytical procedures during planning?

Answer 3

Enhance auditor’s understanding

Identify unusual transactions and events

Question 4

Are you required to test the effectiveness of internal controls?

Answer 4

No

Question 5

What are assertion level risks?

Answer 5

Risks that relate to specific transactions, balances, or disclosures at the relevant assertion level

Question 6

What are financial statement risks?

Answer 6

Risks that relate pervasively to the financial statements as a whole and potentially impact many relevant assertions

Question 7

When does a significant risk exist?

Answer 7

When inherent risk is exceptionally high

Question 8

What should you document regarding risk?

Answer 8

Discussion among audit team
Key elements of the understanding of the entity and its environment
Assessment of risk of material misstatement
Identified risks and related controls evaluated