Planning The Audit: Identifying, Assessing and Responding to the Risk of Material Misstatement
16 important questions on Planning The Audit: Identifying, Assessing and Responding to the Risk of Material Misstatement
Auditors make materiality judgements for purpose of:
1) audit planning
2) evidence evaluation after audit procedures are completed
Which materiality levels are there?
1. Overall materiality (aka planning materiality)
2. Performance materiality (aka tolerable error)
3. Posting materiality
Which items whould the auditor consider when setting materiality?
- FS items on which users will focus their attention
- Nathere of the client and industry
- Size of the client
- Manner in which the client is financed
- Volatility of the benchmark
- Intensity of the level of analyst following
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Client business risks
Examples of business risks
- Overall economic climate
- Technological change
- Competitors actions
- Geographic locations of suppliers
Which resources can an auditor use when obtaining an understanding of the client's business and associated business risks?
- Management inquiries
- Review of client's budget
- Tour of client's plant and operations
- Review relevant government regulations and client's legal obligations
- Knowledge management systems
- Online searches
- Review of SEC filings
- Company websites
- Economic statistics
- Professional practice bulletins
- Stock analyst reports
- Company earnings calls
Which risks are included in the audit risk model?
- Inherent risk
- Control risk
- Audit risk
- Detection risk
Audit risk model
To encourage interactive and constructive group dialogue and idea exchange, the audit team typically follows important guidelines during the brainstorm session:
- Suspension of criticism
- Freedom of expression
- Quantity of idea generation
- Respectful communication
Which steps do brainstorming sessions normally follow?
1. Review prior year client information
2. Consider client information, particularly with respect to the fraud triangle
3. Integrate information from step 1 and 2 into an assessment of the likelihood of fraud in the engagement
4. Identify audit responses to fraud risks
What are two frequently used analytical procedures during the risk assessment?
What does a low level of detection risk means?
What happens if a company has weak controls?
Nature of risk respons
Timing of risk response
Extent of risk response
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