tailieunhanh - Lecture Auditing and assurance services in Australia: Chapter 7 - Gay, Simnett

Chapter 7 - Inherent risk assessment and materiality. After studying this chapter you should be able to: explain the factors that influence the assessment of inherent risk; explain the auditor’s consideration of the special risk areas of fraud, related parties and the appropriateness of the going concern basis; and explain the concept of materiality. | CHAPTER 7 INHERENT RISK ASSESSMENT AND MATERIALITY INHERENT RISK (IR) Defined: Susceptibility of account balance or class of transactions to material misstatement, given inherent and environmental characteristics, without regard to internal control structure (AUS ). Auditor required to assess IR at financial report level for audit plan, with assessment related to assertions at account balance or class of transactions level when developing audit program. FACTORS AFFECTING IR AT FINANCIAL REPORT LEVEL Integrity of management Management experience, knowledge and changes during the period Unusual pressure on management Nature of entity’s business Factors affecting the industry INHERENT RISK AND COMPUTER INFORMATION SYSTEMS (CIS) As CIS risks can be pervasive to the entity, factors affecting overall IR associated with CIS are: Significant changes in CIS Insufficient CIS skills and resources Lack of entity support and focus High dependence on CIS Reliance on outsourced CIS Reliability and complexity of CIS INHERENT RISK ASSESSMENT AT ACCOUNT BALANCE AND CLASS OF TRANSACTIONS LEVEL Considerations include: Accounts likely to require adjustment Complexity of underlying transactions Judgment involved in determining account balance Susceptibility of assets to loss or misappropriation Occurrence of unusual and complex transactions, particularly at or near year-end transactions not subject to ordinary processing EFFECT OF INHERENT RISK ON AN ACCOUNT BALANCE ASSERTION Figure Effect of inherent risk on an account balance assertion (p. 290) CONSIDERATION OF FRAUD AT PLANNING STAGE At planning stage, auditor must consider the risk that misstatements from fraud or error will not be detected. It is easier to miss material misstatements resulting from fraud because fraud involves acts designed to conceal it. AUDIT PROCEDURES FOR FRAUD AT PLANNING STAGE Auditor will use their experience, knowledge and training to determine whether fraud | CHAPTER 7 INHERENT RISK ASSESSMENT AND MATERIALITY INHERENT RISK (IR) Defined: Susceptibility of account balance or class of transactions to material misstatement, given inherent and environmental characteristics, without regard to internal control structure (AUS ). Auditor required to assess IR at financial report level for audit plan, with assessment related to assertions at account balance or class of transactions level when developing audit program. FACTORS AFFECTING IR AT FINANCIAL REPORT LEVEL Integrity of management Management experience, knowledge and changes during the period Unusual pressure on management Nature of entity’s business Factors affecting the industry INHERENT RISK AND COMPUTER INFORMATION SYSTEMS (CIS) As CIS risks can be pervasive to the entity, factors affecting overall IR associated with CIS are: Significant changes in CIS Insufficient CIS skills and resources Lack of entity support and focus High dependence on CIS Reliance on .