audit risk video

Question 1

cash settled share based transactions

Answer 1

client should re measure fair value of liability at the end of each reporting period
-any changes in FV go to PnL

Question 2

Audit risk

Answer 2

ROMM +
detection risk

Question 3

answering technique for risks of material misstatements

Answer 3

-comment on materiality where possible (amount or nature)

-relevant accounting treatment that should be followed by client

-identify risks in given scenario (any incorrect accounting done or potential)

-impact on FS (understatement/overstatement/ inadequate disclosure)

Question 4

3 technical marks for materiality

Answer 4

-calculate lower range of benchmark given in requirement
-calculate upper range
-a decision with justification on the amount that you’ll be using

just state in risk:
XYZ is highly material to the group

Question 5

client calculated VIU taking inflows that will be received after asset is repaired

Answer 5

not correct
VIU shud be calculated in current condition

Question 6

justify why FS area is significant risk

Answer 6

significant means:
-likelihood (probability it wud occur)
-magnitude (materiality of impact) items or areas can be material by nature amount or circumstances

Question 7

WIP increased by 10% and sales increased by 4%

WIP calcuated by new director

Answer 7

-seems high compared to sales
-estimating WIP is complicated and involves judgement
-new so lack of knowldege, inconsistency

Question 8

What is audit risk according to the IAASB Glossary of Terms?

Answer 8

Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. It is a function of material misstatement and detection risk.

Question 9

Why is audit risk fundamental to the audit process?

Answer 9

Because auditors cannot check all transactions due to their volume and cost, so a risk-based approach is used to minimize the chance of an inappropriate audit opinion and to focus on key risks.

Question 10

What is ISA 200 and its significance to audit risk?

Answer 10

ISA 200 outlines the overall objectives of the auditor and the conduct of an audit in accordance with ISAs. It emphasizes planning and performing the audit with professional scepticism to identify potential material misstatements.

Question 11

What does ISA 315 cover regarding audit risk?

Answer 11

ISA 315 deals with identifying and assessing risks of material misstatement through understanding the entity and its environment, including internal controls.

Question 12

What are the key requirements of ISA 315?

Answer 12

-Perform risk assessment procedures.
-Obtain an understanding of the entity and its environment.
-Identify and assess risks of material misstatement, including significant risks.
-Design and perform further audit procedures based on assessed risks.

Question 13

What are the three risk assessment procedures outlined in ISA 315?

Answer 13

-Making inquiries of management and others within the entity.
-Performing analytical procedures.
-Observing and inspecting the entity’s operations, documents, and facilities.

Question 14

Why is understanding an entity important in audit risk assessment?

Answer 14

It helps identify risks of material misstatement, design responses to assessed risks, and ensure sufficient appropriate audit evidence is collected.

Question 15

How should auditors identify significant risks according to ISA 315?

Answer 15

Auditors should consider risks of fraud, recent significant developments, complexity of transactions, transactions with related parties, subjectivity in measurements, and transactions outside normal business.

Question 16

What is ISA 330 and its role in responding to assessed risks?

Answer 16

ISA 330 provides guidance on the nature and extent of testing required based on risk assessment findings.

Question 17

What is the distinction between audit risk and business risk?

Answer 17

Audit risk is the risk of giving an inappropriate opinion on materially misstated financial statements, while business risk is broader and concerns conditions that could adversely affect an entity’s ability to achieve its objectives.

Question 18

What are the three components of the traditional audit risk model?

Answer 18

Inherent risk: Susceptibility of an assertion to misstatement before considering controls.
Control risk: Risk that a misstatement will not be prevented or detected by internal controls.
Detection risk: Risk that audit procedures will not detect a material misstatement.

Question 19

What is the UK and Ireland perspective on audit risk as per the article?

Answer 19

The UK and Ireland have updated their auditing standards to align with clarified ISAs, with no significant differences in audit risk between ISA 315 and the UK/Ireland version.