14 - Planning Assessing Risk

Question 1

What is included in the audit strategy memorandum?

Answer 1

Background 
Systems
Staffing
Materiality
Analytical procedures 
Risk assessment 
Timetable

Question 2

What is audit risk?

Answer 2

Inherent risk x control risk x detection risk

Question 3

In what cases would inherent risk be higher?

Answer 3

Significant development occurred
Accounting is complex
Non routine transaction
Judgements required, e.g estimates

Question 4

What are the financial statement level risks?

Answer 4

Fraud
Going concern
Weak control environment

Question 5

What are the two different types of fraud?

Answer 5

Fraudulent financial reporting

Missappropriation of assets

Question 6

Fraud risk factors?

Answer 6

Incentive or pressure to commit fraud

Perceived opportunity to commit fraud

Ability to rationalise the fraudulent action

Question 7

Benchmarks for materiality?

Answer 7

PBT - profit orientated entity consistently showing profit

Op ex - public sector entity providing services based on budget

Revenue - fluctuations in PBT but still profit orientated entity / not for profit but has minimal profits or is loss making

Total assets - property management company with value services