Page 61 - CA Inter Audit PARAM

CA Ravi Taori
• The Complexity of transactions;
• 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
• Whether the risk involves significant transactions with Related parties;
• 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.

Author’s Note
Shortcut to remember- (CFO-CSR)

Risk of Material Misstatement due to Non Routine Transactions & Old Course -- (N21R/N23M)
QNO Significant Judgemental Matters leads to Significant Risk New Course –(SM25/M24M)
315.26
Bhaskar CNO- SA315-P1.140
Risks of material misstatement may be greater for significant non-routine transactions arising from
matters such as complex calculations. Also, risks of material misstatement may be greater for significant
judgmental matters that require the development of accounting estimates, arising from matters such as
accounting principles for accounting estimates may be subject to differing interpretation etc. Explain in
detail.

OR

What is understood by “non-routine” transactions? Briefly outline why risks of material misstatement is
greater for such transactions
OR
Auditor of Sunshine Ltd. is of the view that due to greater management intervention to specify accounting
treatment, the risk of material misstatement is greater for non-routine transactions. Is view of the auditor,
correct? Specify the other matters due to which the risk of material misstatement is greater for significant
non-routine transactions.
Answer Risks of Material Misstatement– Greater for Significant Non-Routine Transactions
Risks of material misstatement may be greater for significant non-routine transactions arising from
matters such as the following:
➢ Greater management intervention to specify the accounting treatment.
➢ Greater manual intervention for data collection and processing.
➢ Complex calculations or accounting principles.
➢ The nature of non-routine transactions, which may make it difficult for the entity to implement
effective controls over the risks.

Risks of material misstatement– Greater for Significant Judgmental Matters
Risks of material misstatement may be greater for significant judgmental matters that require the
development of accounting estimates, arising from matters such as the following:
➢ Accounting principles for accounting estimates or revenue recognition may be subject to
differing interpretation.
➢ Required judgment may be subjective or complex, or require assumptions about the effects of
future events, for example, judgment about fair value.

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