Page 106 - CA Final PARAM Digital Book.

Part 3-SA 315 (RISK)

QNO Significant Risk Old Course – (M15R, N18E, N20E)
38.000 TITANIUM CNO—SA315.060
Explain, how an auditor may determine, while doing Risk Assessment, whether any risk is a significant risk
Answer Part I -- Relevant Standards & Laws
▪ SA 315, Identifying And Assessing The Risk Of Material Misstatement Through Understanding The

Entity And Its Environment
Part II -- Requirements of Relevant Standards & Laws
➢ Significant Risk Definition: - Assessed RMM which in auditor’s judgement require special
audit consideration / it is part of identifying and assessing risk / exclude effect of
identified controls.
Significant risk is an identified and assessed risk of material misstatement that, in the auditor’s
judgment, requires special audit consideration.

As part of the risk assessment, the auditor shall determine whether any of the risks identified are,
in the auditor’s judgment, a significant risk. In exercising this judgment, the auditor shall exclude the
effects of identified controls related to the risk.

➢ Factors useful in determining significant Risk
Agar (CFO-CSR) karge toh it is significant risk to society
Changes legal, economic, accounting / risk of Fraud / Outside normal course of business
/ Complexity / Subjectivity / Related party
C-Whether the risk is related to recent significant economic, accounting, or other
developments like changes in regulatory environment, etc., and, therefore, requires specific
attention; (AS to Ind AS)
F-Whether the risk is a risk of fraud; (Mismatch in Cash Balance)
0-Whether the risk involves significant transactions that are outside the normal course of
business for the entity, or that otherwise appear to be unusual. (E.g. Sold 50% of Inventory
to Employees instead of Salary of the month)
C-The complexity of transactions;(E.g. 2 group companies will demerge to form 10
companies and out of them 3 will amalgamate to form a new company which will be bank
financed
S-The degree of subjectivity in the measurement of financial information related to the risk,
especially those measurements involving a wide range of measurement uncertainty; and
(E.g. Brand valuation can change from person to person)
R-Whether the risk involves significant transactions with related parties; (Major Sales
happen through subsidiaries registered in Tax Haven)

➢ Obtain understanding of relevant controls to understand effect on FST
When the auditor has determined that a significant risk exists, the auditor shall obtain an
understanding of the entity’s controls, including control activities, relevant to that risk.

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