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Classified - Internal use
IDENTIFYING AND
ASSESSING THE RISKS OF
MATERIAL MISSTATEMENT
THROUGH
UNDERSTANDING THE
ENTITY AND ITS
ENVIRONMENT
PSA 315
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Classified - Internal use
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OBJECTIVE
FRAUD
UNDERSTANDING
Implemen
tation
IDENTIFY
ENTITY
Risks of
material
misstatement
ITS
ENVIRONMENT
INCLUDING
INTERNAL
CONTROL
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Design
Basis for
ASSESS
Responses to the
assessed risks of
material
misstatement
ERROR
Classified - Internal use
DEFINITIONS
a)
b)
c)
d)
e)
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Assertions
Business risk
Internal control
Risk assessment procedures
Significant risk
Classified - Internal use
REQUIREMENTS
Risk Assessment Procedures and Related Activities
The Required Understanding of the Entity and Its
Environment, Including the Entitys Internal Control
Identifying and Assessing the Risks of Material Misstatement
Material Weakness in Internal Control
Documentation
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Classified - Internal use
RISK ASSESSMENT PROCEDURES AND
RELATED ACTIVITIES
Provides a basis for the identification and assessment of risks of
material misstatement at the financial statement and assertion levels.
(Note: This does not provide sufficient appropriate audit evidence to
base the audit opinion.)
Includes:
Inquiries of management, and of others within the entity who in the
auditors judgment may have information that is likely to assist in
identifying risks of material misstatement due to fraud or error.
Analytical procedures (To be discussed in PSA 520).
Observation and inspection
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Classified - Internal use
REQUIREMENTS
Risk Assessment Procedures and Related Activities
The Required Understanding of the Entity and Its
Environment, Including the Entitys Internal Control
Identifying and Assessing the Risks of Material Misstatement
Material Weakness in Internal Control
Documentation
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Classified - Internal use
THE REQUIRED UNDERSTANDING OF THE
ENTITY AND ITS ENVIRONMENT, INCLUDING
THE ENTITYS INTERNAL CONTROL
The Entity
and Its
Environment
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Internal
Control
Classified - Internal use
THE REQUIRED UNDERSTANDING OF THE
ENTITY AND ITS ENVIRONMENT, INCLUDING
THE ENTITYS INTERNAL CONTROL
The auditor shall
obtain an
understanding
of the
Relevant
industry,
regulatory, and
other external
factors including
the applicable
financial
reporting
framework.
Measuremen
t and review
of the
entitys
financial
performance.
Nature of the
Entity
The Entity
and Its
Environment
Objectives
and
Strategies
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Selection and
application of
accounting
policies
Classified - Internal use
THE REQUIRED UNDERSTANDING OF THE
ENTITY AND ITS ENVIRONMENT, INCLUDING
THE ENTITYS INTERNAL CONTROL
Sources of Information:
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Classified - Internal use
10
THE REQUIRED UNDERSTANDING OF THE
ENTITY AND ITS ENVIRONMENT, INCLUDING
THE ENTITYS INTERNAL CONTROL
Control
Activities
Risk
Assessment
Internal
Control
Do you remember
your CRIME?
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Information
System
Components
Monitoring
Control
Environment
Classified - Internal use
11
REQUIREMENTS
Risk Assessment Procedures and Related Activities
The Required Understanding of the Entity and Its
Environment, Including the Entitys Internal Control
Identifying and Assessing the Risks of Material
Misstatement
Material Weakness in Internal Control
Documentation
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Classified - Internal use
12
IDENTIFYING AND ASSESSING THE
RISKS OF MATERIAL MISSTATEMENT
The auditor shall identify and assess the risks of material
misstatement at:
Financial
Statement
Level
Assertion
Level
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Transactions
Account
balances
Disclosures
Classified - Internal use
Basis for
designing
and
performing
further
audit
procedures
13
REQUIREMENTS
Risk Assessment Procedures and Related Activities
The Required Understanding of the Entity and Its
Environment, Including the Entitys Internal Control
Identifying and Assessing the Risks of Material Misstatement
Material Weakness in Internal Control
Documentation
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Classified - Internal use
14
MATERIAL WEAKNESS IN INTERNAL
CONTROL
The auditor shall communicate material weaknesses in internal
control identified during the audit on a timely basis to
management at an appropriate level of responsibility, and, as
required by PSA 260 (Revised), Communication with Those
Charged with Governance, with those charged with governance
(unless all of those charged with governance are involved in
managing the entity).
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Classified - Internal use
15
REQUIREMENTS
Risk Assessment Procedures and Related Activities
The Required Understanding of the Entity and Its
Environment, Including the Entitys Internal Control
Identifying and Assessing the Risks of Material Misstatement
Material Weakness in Internal Control
Documentation
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Classified - Internal use
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DOCUMENTATION
The auditor shall document:
a) The discussion among the engagement team and the significant
decisions reached;
b) Key elements of the understanding obtained regarding each of the
aspects of the entity and its environment and of each of the
internal control components; the sources of information from
which the understanding was obtained; and the risk assessment
procedures performed;
c) The identified and assessed risks of material misstatement at the
financial statement level and at the assertion level;
d) The risks identified, and related controls about which the auditor
has obtained an understanding.
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Classified - Internal use
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Questions?
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Classified - Internal use
18
