Page 68 - CA Inter Bhaskar Vol 1

RISK ASSESSMENT AND INTERNAL CONTROL CA RAVI TAORI

03 Risk Assessment And Internal Control

Part 1 -- [SA 315] IDENTIFYING AND ASSESSING RISK OF MATERIAL AUDIT BHASKAR CH 03 - PART 01
MISSTATEMENT THROUGH UNDERSTANDING ENTITY AND ITS ENVIRONMENT

(CNO--SA315-P1.010) WHAT IS MEANT BY MISSTATEMENT? (QNO-315.00.50)

WHAT IS MEANT BY MISSTATEMENT

Difference b/w amount, classification, presentation
Meaning
or disclosure in FST & required as per AFRF

Examples : Capital Expenditure misallocation.

Asset Related Inventory Misstatements
Overstatements of Receivables

Expense Related Fake book Expenses
Inappropriate Accounting policies

Others Discrepancies in accounting Estimates
Disclosures in Financial Statements required as per AFRF

Misstatement refers to a difference between the amount, classification, presentation, or

disclosure of a reported financial statement item and the amount, classification, presentation, or
disclosure that is required for the item to be in accordance with the applicable financial reporting
framework. Misstatements can arise from error or fraud.

Few examples of misstatements could be: -
Asset Related
Capital Expenditure Misallocation: Charging of an item of capital expenditure to revenue or
vice-versa.
Inventory Misstatements: Overstating or understating inventories.
Receivables Overstatement: Overstating of receivables in financial statements by not writing
off irrecoverable debts.

Expense Related
Fake Expense Booking: Intentional booking of fake expenses in statement of profit and loss.

Others
Inappropriate Accounting Policies: Selection or application of inappropriate accounting
policies.
Accounting Estimate Discrepancy: Difference in accounting estimate of a financial
statement item vis-à-vis its appropriateness in applicable financial reporting framework.
Financial Statement Disclosure: Difference in disclosure of a financial statement item vis-à-

vis its requirement in applicable financial reporting framework.

www.auditguru.in 03.01