Recap D1 - Staff 2

What is not an inherent risk factor when identifying events and conditions when performing risk assessment procedures?

• Susceptibility to misstatement due to management bias or other fraud risk factors
• Objectivity
• Complexity
• Uncertainty

What factor is NOT something we are required to understand to develop our understanding of the business?

• The extent to which the business model integrates the use of IT
• Relevant industry, regulatory and other external factors, including climate-related risks
• Sources of the comperitor’s earnings, including the relative profitability of key products and services
• How the entity is financed (funding and finance)

What is not a qualitative factor when evaluating an account is a limited risk account?

• There are no significant changes in the business or applicable accounting policies that may affect the accounting for the account balance
• The designation in PACE is “higher” or “close-monitoring”
• The account is subject to low subjectivity and uncertainty
• There are no significant risks associated with the account

For any account designation, we are required to identify relevant assertions and make an inherent risk assessment at the assertion level.

• True
• False

To help with our determination of insignificant accounts, which factor should we consider?

• The nature of journal entry
• The date for preparing and posting journal entry
• The amount of each journal entry
• Manual journal entry lines

What is the definition of inherent risk

• A risk of material misstatement at the assertion level for an account or disclosure that we identify as we understand the entity, its environment, its system of internal control and performing other risk assessment procedures. It has a reasonable possibility of a misstatement occurring and of being material if it were to occur, individually or when aggregated with other misstatements affecting the related relevant assertions before consideration of any related controls
• A risk of material misstatement at the assertion level that can occur within a significant class of transactions or significant disclosure process that has a reasonable possibility of a misstatement occurring and of being material if it were to occur, individually or when aggregated with other misstatements affecting the related relevant assertion before consideration of any related controls
• The risk that a misstatement that could occur in an assertion about a class of transactions, account balance or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal controlC. The risk that a misstatement that could occur in an assertion about a class of transactions, account balance or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control
• Risks that have a likelihood of occurrence of misstatement, and a magnitude that could result in a material misstatement, individually or in the aggregate, affecting relevant assertions, before consideration of any related controls. They consist of inherent risks and What Can Go Wrongs

When the combined risk assessment increases, to minimize audit risk, we need to implement procedures to:

• Increase detection risk
• Reduce detection risk
• Not related to detection risk, we need to review CRA to minimize CRA by performing test of control and relying on it

The combined risk assessment (CRA) is a combination of our:

• Inherent risk assessment and our decision whether to test the control
• Inherent risk assessment and our audit procedures to reduce audit risk to an acceptably low level
• Our decision whether to test the control as well as our audit procedures to reduce audit risk to an acceptably low level
• Combination of all option above

What is not a topic to consider when we identify risk factor?

• Complete initial planning activities
• Assess the entity compliance with law & regulation
• Review minutes and contracts
• Understand the business of competitors

What is the risk of material misstatement at the FS level?

• No change in the market and environmental
• No change in management during period, particularly in key accounting position
• The influence of key stakeholders on management’s action
• No change or update in legal and regulatory