3. Risk Assessment

Question 1

3. What are 5 stages of the risk assessment process?

Answer 1

Understand the entity
Identify risks 
Assess risks
Design audit procedures
Perform audit procedures

Question 2

3. What are the 3 points of the fraud triangle?

Answer 2

Incentives/Pressure
Opportunity
Rationalisation

Question 3

3. When assessing risks, what is the difference between assertion level and financial statement level?

Answer 3

Assertion would only affect part of a financial statement (eg. tax balances)
Financial statement level affects the whole of the financial statements (non-compliance with disclosure requirements)

Question 4

3. What is the difference between inherent risk and significant risk?

Answer 4

Inherent means the risk of a material misstatement in a company’s financial statements without considering internal controls (this is assessed with low - high)
Significant risk is fraud