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    Chapter 10 Identifying and Assessing The Risks of Material Misstatements

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    Richard de Leon
    This document summarizes the key aspects of PSA 315 regarding identifying and assessing risks of material misstatements. It discusses (I) risk assessment procedures such as inquiries, analytical procedures, and observations; (II) understanding the entity and its environment including internal control; (III) identifying and assessing risks of material misstatements considering factors such as fraud risk, recent economic changes, and related party transactions; (IV) identifying material weaknesses in internal control; and (V) documentation requirements. The standard aims to help auditors properly understand risks and establish effective audit procedures.

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    Chapter 10 Identifying and Assessing The Risks of Material Misstatements

    Uploaded by

    Richard de Leon
    130 views7 pages
    This document summarizes the key aspects of PSA 315 regarding identifying and assessing risks of material misstatements. It discusses (I) risk assessment procedures such as inquiries, analytical procedures, and observations; (II) understanding the entity and its environment including internal control; (III) identifying and assessing risks of material misstatements considering factors such as fraud risk, recent economic changes, and related party transactions; (IV) identifying material weaknesses in internal control; and (V) documentation requirements. The standard aims to help auditors properly understand risks and establish effective audit procedures.

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    Chapter 10 Identifying and Assessing the Risks of Material Misstatements

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    This document summarizes the key aspects of PSA 315 regarding identifying and assessing risks of material misstatements. It discusses (I) risk assessment procedures such as inquiries, analytical procedures, and observations; (II) understanding the entity and its environment including internal control; (III) identifying and assessing risks of material misstatements considering factors such as fraud risk, recent economic changes, and related party transactions; (IV) identifying material weaknesses in internal control; and (V) documentation requirements. The standard aims to help auditors properly understand risks and establish effective audit procedures.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    130 views7 pages

    Chapter 10 Identifying and Assessing The Risks of Material Misstatements

    Uploaded by

    Richard de Leon
    This document summarizes the key aspects of PSA 315 regarding identifying and assessing risks of material misstatements. It discusses (I) risk assessment procedures such as inquiries, analytical procedures, and observations; (II) understanding the entity and its environment including internal control; (III) identifying and assessing risks of material misstatements considering factors such as fraud risk, recent economic changes, and related party transactions; (IV) identifying material weaknesses in internal control; and (V) documentation requirements. The standard aims to help auditors properly understand risks and establish effective audit procedures.

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    Chapter 10

    Identifying and Assessing the


    Risks of Material
    Misstatements Through
    Understanding the Entity and
    Its Environment
    PSA 315 (Redrafted), “Identifying and Assessing
    the Risks of Material Misstatements through
    Understanding the Entity and Its Environment
    deals with the auditor’s responsibility to identify and assess the risks of
    material misstatements in the financial statements, through
    understanding of the entity and its environment, including its internal
    control. The standard presents an overview of the requirements
    such as:
    I. Risk assessment procedures and sources of information about the
    entity and its environment, including its internal control
    II. Understanding the entity and its environment, including its internal
    control
    III. Identifying and assessing of the risks of material misstatements
    IV. Material weakness in internal control
    V. Documentation
    I. RISK ASSESSMENT PROCEDURES

    Inquiries of Analytical Observation


    management and procedures and inspection
    others within the
    entity

    II. UNDERSTANDING THE ENTITY AND ITS


    ENVIRONMENT INCLUDING ITS INTERNAL CONTROL

    Industry, Nature of Objectives and


    regulatory and the entity strategies and
    other regulatory related business
    factors risks

    Measurement and Understanding


    review of the the client’s
    entity’s financial internal control
    performance
    III. IDENTIFYING AND ASSESSING THE RISK OF
    MATERIAL MISSTATEMENT
    Matters to be considered by the auditor in identifying and assessing
    the risk of material misstatements:

    Whether the risk is a risk of fraud.

    Whether the risk is related to recent significant economic, accounting


    or other developments and, therefore, requires specific attention.

    The complexity of transactions.

    Whether the risks involves significant transactions with related parties.

    The degree of subjectivity in the measurement of financial information


    related to the risk especially those involving a wide range of
    measurement uncertainty.

    Whether the risk involves significant transactions that are outside the
    normal course of business for the entity, or that otherwise appear to
    be unusual..
    IV. MATERIAL WEAKNESS IN INTERNAL CONTROL

    The auditor must identify the following risks:

    Risks of material misstatement that the auditor identifies


    and which the entity has not controlled, or for which the
    relevant control is inadequate.

    A weakness in the entity’s risk assessment process that


    the auditor identifies as material, or the absence of a risk
    assessment process in those cases where it would be
    appropriate for one to have been established.
    V. DOCUMENTATION

    The discussion among the engagement team regarding the susceptibility


    of the entity’s FS to material misstatement due to error or fraud

    Key elements of the understanding obtained regarding each of the


    aspects of the entity and its environment

    The identified and assessed risks of material misstatement at the FS


    level and at the assertion level

    The risks identified and related controls evaluated as a result of the


    requirements in paragraph 24 of PSA 315 (Redrafted)

    The risks identified and related controls evaluated as a result of the


    requirements in paragraphs 26-29 of PSA 315 (Redrafted)
    Activity: Watch video on
    1. “Audit Risk Model” – 11:00
    2. “Assessing Inherent Risks” – 3:58
    3. “Assessing Control Risks” – 3:44

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