Page 51 - CA Inter Audit PARAM

CA Ravi Taori
this company the auditor may not notice this and consequently may not report anything regarding the plant
and machinery. Therefore, opinion given by the auditor would be inappropriate resulting in audit risk.

What is not included in Audit Risk?
(i) Audit risk does not include the risk that the auditor might express an opinion that the financial statements
are materially misstated when they are not. This risk is ordinarily insignificant.
(ii) Further, audit risk is a technical term related to the process of auditing. It does not refer to the auditor’s
business risks such as loss from litigation, adverse publicity, or other events arising in connection with the
audit of financial statements.

QNO Inquiry for risk assessment Old Course -- (N20R/N22M/M23E)
315.05.50 Bhaskar CNO- SA315-P1.040 New Course – (M24E)
Much of the information obtained by the auditor’s inquiries is obtained from management and those
responsible for financial reporting. However, the auditor may also obtain information, or a different
perspective in identifying risks of material misstatement, through inquiries of others within the entity and
other employees with different levels of authority. Explain with the help of examples.
OR
The risk assessment procedures shall include the Inquiries of management and of others within the entity
who in the auditor’s judgment may have information that is likely to assist in identifying
risks of material misstatement due to fraud or error. Explain giving at least three examples.

OR
CA Q is the engagement partner for the audit of a Departmental store. As a part of the risk assessment
procedure, he wants to make inquiries of the management and others within the entity. What kind of
information can the auditor get by inquiring from the following?
(i) Internal audit personnel
(ii) In-house legal counsel
(iii) Marketing or sales personnel
(iv) Information systems personnel
➢ Much of the information obtained by the auditor’s inquiries is obtained from management and
those responsible for financial reporting. However, the auditor may also obtain information, or a
different perspective in identifying risks of material misstatement, through inquiries of others
within the entity and other employees with different levels of authority.

Inquiries directed towards those charged with governance may help the auditor
understand the environment in which the financial statements are prepared.1
Inquiries directed toward internal audit personnel may provide information about internal
audit procedures performed during the year relating to the design and effectiveness of the
entity’s internal control and whether management has satisfactorily responded to findings
from those procedures. 3
Inquiries directed to the risk management function (or those performing such roles) may
provide information about operational and regulatory risks that may affect financial
reporting. 2
Inquiries directed toward in-house legal counsel may provide information about such
matters as litigation, compliance with laws and regulations, knowledge of fraud or
suspected fraud affecting the entity, warranties, post-sales obligations, arrangements
(such as joint ventures) with business partners and the meaning of contract terms. 4
Inquiries directed towards marketing or sales personnel may provide information about
changes in the entity’s marketing strategies, sales trends, or contractual arrangements
with its customers. 6
Inquiries directed to information systems personnel may provide information about
system changes, system or control failures, or other information system related risks. 5
Inquiries of employees involved in initiating, processing or recording complex or unusual
transactions may help the auditor to evaluate the appropriateness of the selection and
application of certain accounting policies. 7

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