Page 94 - CA Final PARAM Digital Book.

Assessing the risks of material misstatement in the financial statements.
Making an informed assessment of the risks of material misstatement at the financial
statement level and at the assertion level.
• Significant Risk
Identifying the significant risks that require special audit consideration and those risks
for which substantive procedures alone are not sufficient.
• Communication
Communicating any material weaknesses in the design and implementation of internal
control to management and those charged with governance; and

QNO Steps for Risk Identification Old Course – (SM21)
163.500 TITANIUM CNO—MRI.100
Your engagement team is seeking advice from you as engagement partner regarding steps for risk

identification. Elaborate.
Answer ➢ Steps For Risk Identification
Inherent Risks
• Consider the existence of any particular characteristics (inherent risks) in the class of
transactions, account balance or disclosure that need to be addressed in designing further
audit procedures. Consider any unique characteristics of the risk.
• Examples could include high value inventory, complex contractual agreements, absence of
a paper trail on certain transaction streams or a large percentage of sales coming from a
single customer.
Nature of Controls
Consider the nature of the internal control system in place and its possible effectiveness in
mitigating the risks involved.
• Ensure the controls :
o Routine in nature (occur daily) or periodic such as monthly.
o Designed to prevent or detect and correct errors.
o Manual or automated.

Impact on Assertions
Consider the impact of the risk on each of the assertions (completeness, existence, accuracy,
validity, valuation and presentation) relevant to the account balance, class of transactions, or
disclosure.

Likelihood of Risk
Determine the likelihood for assessed risk to occur and its impact on our auditing procedures.

Significance of Risk
Assess the significance of the assessed risk, impact of its occurrence and also revise the
materiality accordingly for the specific account balance.

Degree of significant risks that required separate attention
Identify the degree of Significant risks that would require separate attention and response by
the auditor. Planned audit procedures should directly address these risks.

Document
Document the assertions that are effected.

Management’s Response
Enquire and document the management’s response.

QNO Revision of Control Risk New Course – (SM23)
163.700 TITANIUM CNO-- MRI.220
CA. R is conducting statutory audit of a Divisional office (DO) of a public sector insurance company. On
going through delegation of powers laid down by company’s head office, it is noticed that surveyors in
claims under property insurance policies beyond estimated amounts of ₹ 30 lac are to be appointed by
Divisional Claims Committee (DCC). However, ongoing through surveyor appointment details of 10 such
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