IDENTIFYING AND
IDENTIFYING AND
ASSESSING
ASSESSING THE RISKS
THE RISKS OF
OF
MATERIAL
MATERIAL MISSTATEMEN
MISSTATEMENT
T
THROUGH
THROUGH
UNDERSTANDING THE
UNDERSTANDING THE
ENTITY AND ITS
ENTITY AND ITS
ENVIRONMENT
ENVIRONMENT
PSA 315 PSA 315
OBJECTIVE
OBJECTIVE
IDENTIFY IDENTIFY ASSESS ASSESS Risks of Risks of material material misstatement misstatement FRAUD FRAUD ERROR ERROR UNDERSTANDING… UNDERSTANDING… ENTITY ENTITY ITS ITS ENVIRONMENT ENVIRONMENT INCLUDING… INCLUDING… INTERNAL INTERNAL CONTROL CONTROL Design Design Implemen Implemen tation tation Responses to the Responses to the assessed risks of assessed risks of material material misstatement misstatement Basis for Basis forDEFINITIONS
DEFINITIONS
a)
a) AsAssesertrtioionsns b)
b) Business risk Business risk c)
c) InInteternrnal cal conontrtrolol d)
d) RisRisk assek assessmssment prent proceocedurdureses e)
REQUIREMENTS
REQUIREMENTS
Risk Assessment Procedures and Related ActivitiesRisk Assessment Procedures and Related Activities
The Required Understanding of the Entity and ItsThe Required Understanding of the Entity and Its Environment, Including
Environment, Including the Entity’s Internalthe Entity’s Internal ControlControl
Identifying and Assessing the Risks of Material Identifying and Assessing the Risks of Material MisstatementMisstatement
Material Weakness in Internal ControlMaterial Weakness in Internal Control
RISK ASSESSMENT PROCEDURES AND
RISK ASSESSMENT PROCEDURES AND
RELATED ACTIVITIES
RELATED ACTIVITIES
P
Prroovviiddeess aa bbaassiiss ffoorr tthhee iiddeennttiiffiiccaattiioonn aanndd aasssseessssmmeenntt ooff rriisskkss oof f ma
mateteririalal mimisssstatatetemementnt atat ththee fifinanancnciaiall ststatatememenentt anandd asassesertrtionion lelevevelsls.. (Not
(Note: e: This does not provide sufficThis does not provide sufficient apprient appropriopriate audiate audit evidence tot evidence to base the audit opinion.)
base the audit opinion.) Includes:
Includes:
Inquiries of management, and of others within the entity who in theInquiries of management, and of others within the entity who in the auditor’s judgment
auditor’s judgment may have information that is likely to assist may have information that is likely to assist inin identifying risks of material misstatement due to fraud or error. identifying risks of material misstatement due to fraud or error.
Analytical Analytical procedures procedures (To be discusse(To be discussed in PSd in PSA 520).A 520).
REQUIREMENTS
REQUIREMENTS
Risk Assessment Procedures and Related ActivitiesRisk Assessment Procedures and Related Activities
The Required Understanding of the Entity and ItsThe Required Understanding of the Entity and Its Environment, Including
Environment, Including the Entity’s Internalthe Entity’s Internal ControlControl
Identifying and Assessing the Risks of Material Identifying and Assessing the Risks of Material MisstatementMisstatement
Material Weakness in Internal ControlMaterial Weakness in Internal Control
THE REQUIRED UNDERSTANDING OF THE
THE REQUIRED UNDERSTANDING OF THE
ENTITY AND ITS
ENTITY AND ITS ENVIRONMENT, INCLUDING
ENVIRONMENT, INCLUDING
THE ENTITY’S INTERNAL CONTROL
THE ENTITY’S INTERNAL CONTROL
The Entity The Entity and Its and Its Environment Environment Internal Internal Control Control
THE REQUIRED UNDERSTANDING OF THE
THE REQUIRED UNDERSTANDING OF THE
ENTITY AND ITS
ENTITY AND ITS ENVIRONMENT, INCLUDING
ENVIRONMENT, INCLUDING
THE ENTITY’S INTERNAL CONTROL
THE ENTITY’S INTERNAL CONTROL
The Entity The Entity and Its and Its Environment Environment Relevant Relevant industry, industry, regulatory, and regulatory, and other external other external factors including factors including the applicable the applicable financial financial reporting reporting framework. framework. Nature of the Nature of the Entity Entity Selection and Selection and application of application of accounting accounting policies policies Objectives Objectives and and Strategies Strategies Measuremen Measuremen t and review t and review of the of the entity’s entity’s financial financial performance. performance. The auditor shall
The auditor shall obtain an obtain an understanding understanding of the … of the …
THE REQUIRED UNDERSTANDING OF THE
THE REQUIRED UNDERSTANDING OF THE
ENTITY AND ITS
ENTITY AND ITS ENVIRONMENT, INCLUDING
ENVIRONMENT, INCLUDING
THE ENTITY’S INTERNAL CONTROL
THE ENTITY’S INTERNAL CONTROL
Sources of Information: Sources of Information:
THE REQUIRED UNDERSTANDING OF THE
THE REQUIRED UNDERSTANDING OF THE
ENTITY AND ITS
ENTITY AND ITS ENVIRONMENT, INCLUDING
ENVIRONMENT, INCLUDING
THE ENTITY’S INTERNAL CONTROL
THE ENTITY’S INTERNAL CONTROL
Internal Internal Control Control C Controlontrol Activities Activities R Riskisk Assessment Assessment I Informationnformation System System M Monitoringonitoring Control Control E Environmentnvironment Components Components Do you remember Do you remember your
REQUIREMENTS
REQUIREMENTS
Risk Assessment Procedures and Related ActivitiesRisk Assessment Procedures and Related Activities
The Required Understanding of the Entity and ItsThe Required Understanding of the Entity and Its Environment, Including
Environment, Including the Entity’s Internalthe Entity’s Internal ControlControl
Identifying and Assessing the Risks of MaterialIdentifying and Assessing the Risks of Material Misstatement
Misstatement
Material Weakness in Internal ControlMaterial Weakness in Internal Control
IDENTIFYING AND ASSESSING THE
IDENTIFYING AND ASSESSING THE
RISKS OF MATERIAL MISSTATEMENT
RISKS OF MATERIAL MISSTATEMENT
The auditor shall identify and assess the risks of material The auditor shall identify and assess the risks of material misstatement at: misstatement at: Financial Financial Statement Statement Level Level
Assertion
Assertion
Level
Level
• • TransactionsTransactions • • AccountAccount balances balances • • DisclosuresDisclosures Basis for Basis for designing designing and and performing performing further further audit audit procedures proceduresREQUIREMENTS
REQUIREMENTS
Risk Assessment Procedures and Related ActivitiesRisk Assessment Procedures and Related Activities
The Required Understanding of the Entity and ItsThe Required Understanding of the Entity and Its Environment, Including
Environment, Including the Entity’s Internalthe Entity’s Internal ControlControl
Identifying and Assessing the Risks of Identifying and Assessing the Risks of Material MisstatementMaterial Misstatement
Material Weakness in Internal ControlMaterial Weakness in Internal Control
MATERIAL WEAKNESS IN INTERNAL
MATERIAL WEAKNESS IN INTERNAL
CONTROL
CONTROL
The auditor shall communicate material weaknesses in internal The auditor shall communicate material weaknesses in internal control identified during the audit on a
control identified during the audit on a timely basis totimely basis to
management at an appropriate level of responsibility, and, as management at an appropriate level of responsibility, and, as required by PSA 260 (Revised), “Communication
required by PSA 260 (Revised), “Communication with Those with Those Charged with Governance
Charged with Governance,”,” with those charged with govern with those charged with governanceance (unless all of those charged with go
(unless all of those charged with governance are involved invernance are involved in managing the entity).
REQUIREMENTS
REQUIREMENTS
Risk Assessment Procedures and Related ActivitiesRisk Assessment Procedures and Related Activities
The Required Understanding of the Entity and ItsThe Required Understanding of the Entity and Its Environment, Including
Environment, Including the Entity’s Internalthe Entity’s Internal ControlControl
Identifying and Assessing the Risks of Identifying and Assessing the Risks of Material MisstatementMaterial Misstatement
Material Weakness in Internal ControlMaterial Weakness in Internal Control
DOCUMENTATION
DOCUMENTATION
The auditor shall document: The auditor shall document: a)
a) The dThe discusiscussion sion amonamong thg the enge engagemagement tent team aeam and thnd the signe significanificantt decisions reached;
decisions reached; b)
b) Key elemKey elements of the ents of the understaunderstanding obtnding obtained reained regarding garding each of theeach of the aspects of the entity and its environment and of each of the
aspects of the entity and its environment and of each of the internal control components; the sources of
internal control components; the sources of information frominformation from which t
which the underhe understanding wstanding was obtained; as obtained; and the and the risk assessmrisk assessmentent procedures performed;
procedures performed; c)
c) The idThe identientified fied and aand assessssessed ried risks osks of matf materiaerial missl misstatetatemenment at tt at thehe financial statement level and at the assertion level;
financial statement level and at the assertion level; d)
d) The risThe risks ideks identifntified, aied, and relnd related coated controntrols abouls about whict which the auh the auditorditor has obtained an understanding.
