12) ROMM - Overall Level Flashcards
what happens during the risk assessment?
(still part of the planning stage)
the auditor identifies the ROMM at overall and assertion level
what is the definition of audit risk?
the risk that the auditor expresses an inappropriate audit opinion when the FS are materially misstated
what is the definition of ROMM?
the risk that FS are materially misstated before the start of the audit work
at which levels are ROMM considered?
overall FS level and assertion level
what are the components of audit risk?
ROMM + detection risk
what are the components of ROMM?
inherent risk + control risk
what are the scales for the likelihood of risk?
low, medium, high, significant
what is detection risk?
risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a material misstatement
what can cause detection risk?
- tight audit deadline
- new client we are unfamiliar with
what is inherent risk?
- built-in risk
- the potential of the FS as a whole to have misstatement that could be material (in isolation or aggregate) before controls are considered
what is control risk?
the risk that the controls are not operating effectively
what can give rise to inherent risk?
- fraud
- errors
- going-concern assumption is not appropriate
- non-compliance with laws
what can cause errors in the FS?
- incompetent staff
- reliance on tech
- short-staffing
- having multiple locations
what can give rise to control risk?
- lack of mgmt integrity
- mgmt override of controls
- weaknesses
- poor control environment
why do we determine ROMM?
to determine the nature, timing and extent of audit procedures we need to do
