Risk Assesment

Question 1

Analytical procedures will be useful @ planning stage to help…

Answer 1

Identity:

• balances inconsistent with auditors expectation
• unusual fluctuations

These indicate risks of material misstatement

Question 2

ISA315
Obt understanding Of entity environment & int controls
Explain IAF & int controls

Answer 2

Obt understanding of IAF contributes to obt understanding of client environ & int controls, also ROLE IAF plays in monitoring int controls over fin reporting

A may consider how MANAGEMENT RESPONDED to IAF’s findings & recommendations re DEFICIENCIES in int control
Inc. how responses implemented they’ve subseq been evaluated by IAF

A must evaluate design controls determine if IMPLEMENTED during fin rep period & if EFFECTIVe pREVENTING DETECTING potentially material fraud & error

Question 3

Mistatements (including ommisions) are considered material if they…

(ISA320 materiality in planning & performing a)

Answer 3

Individually/ in aggregate could reasonably be expected to INFLUENCE ECONOMIC DECISIONS of users

Question 4

What are benchmarks for materiality?
- profit B4 tax
-revenue
-total assets 
(ISA320 materiality in planning & performing a)

Answer 4

5-10 profit b4 tax

1-2% total assets

1/2 - 1 % revenue

Question 5

Benchmarks (materiality) should be used in…

The A must then use Judgement to…

Answer 5

Initial assessment of materiality

A must then use judgement to REASSES materiality ensure still relevant to client

Question 6

Examples of items Material by nature?

Answer 6

Related party transactions including, Transactions with D- salary & benefits
Personal use of assets

DISCLOSURE in fs eg re GConcern / possible future legal claims ( could influence user decisions)

Misstatement which would affect compliance with:
-Debt covenant
-regulatory reqms
…
Misstatement when adjusted turn
- reported profit into loss
- reported net asset position into net liability position

Question 7

Define Performance materiality

Answer 7

Amount set by A less than materiality of FS as a whole

To reduce (approp low level) probability that
The aggregate of I corrected misstatements exceeds materially of fs as a whole