Page 75 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
RMM at Assertion Level
Assertion-Specific Risks: Risks associated with specific assertions at the class of transactions, account balance,
or disclosure level need to be identified. For each account balance, class of transactions, and disclosure, a risk
level (high, moderate, or low) should be assessed for each individual assertion.
Degree of Risk in Valuation Assertion: When considering the valuation assertion, the auditor may assess the
risk of error in payables as low. However, for inventory where obsolescence is a factor, the auditor would assess
the valuation risk as high.
Degree of Risk in Completeness Assertion: The risks of material misstatement due to completeness (missing
items) in the inventory balance are assessed as low, but high in relation to the sales balance.

(CNO-MRI.100) Steps for Risk Identification
(Shortcut: Super CARS)

1. Significance of the assessed risk: Evaluate the significance of the assessed risk, its likelihood of occurrence,
and the impact it would have if it were to occur. Adjust the materiality for the specific account balance
accordingly.
2. Control System: Consider the nature of the internal control system in place and its potential effectiveness in
mitigating the risks involved. Ensure that the controls are routine or periodic, designed to prevent or detect and
correct errors, and whether they are manual or automated.
3. Assertion Impact: Document the assertions that would be affected by this risk, considering its impact on
completeness, existence, accuracy, validity, valuation, and presentation in relation to the account balance, class
of transactions, or disclosure.
4. Risk Characteristics: Consider any unique characteristics of the risk and the presence of any specific
characteristics (inherent risks) within the class of transactions, account balance, or disclosure that need to be
addressed when designing further audit procedures. Examples could include high-value inventory, complex
contractual agreements, the absence of a paper trail for certain transaction streams, or a significant portion of
sales coming from a single customer.
5. Significant Risk: Identify the level of significant risks that require special attention and response from the
auditor. The planned audit procedures should directly address these risks. Inquire and document the
management's response to the risks.

(CNO-MRI.120) Possible potential misstatements – Indicators
Completeness: • Duplicated capture of source documents.
• Unidentified transactions. • Invalid source documents on subsidiary ledgers.
• Unprepared source documents. Recording:
• Uncaptured source documents. • Inaccurate capture of source documents.
• Unrepresented rejected source documents. • Inaccurate transaction processing.
Existence/Occurrence • Inaccurate adjustments in subsidiary ledgers.
• Unauthorized or fictitious transactions on source Cut-Off:
documents. • Transactions recorded in incorrect periods.
• Overstated source documents.
• Duplicated transactions on source documents.

(CNO-MRI.140) Risk-Based Audit Approach
Approach
1A. Risk-Based Approach: Audits should be risk-based, focusing on areas of greatest risk to the audited entity's
objectives. This approach involves analyzing audit risks, (Broad) setting materiality thresholds based on this
analysis, and allocating more resources to high-risk areas.

www.auditguru.in 4.4