Page 73 - CA Inter Bhaskar Vol 1

CA RAVI TAORI Inherent risk and control risk are the entity's risks; they exist independently of the audit of the
RISK ASSESSMENT AND INTERNAL CONTROL
AUDIT BHASKAR CH 03 - PART 01 Misstatement
financial statements.

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.

Matter of Professional Judgement
The assessment of risks is based on audit procedures to obtain information necessary for that
purpose and evidence obtained throughout the audit. The assessment of risks is a matter of
professional judgment, rather than a matter capable of precise measurement.

Risks of Material Misstatement at Two levels
The risks of material misstatement may exist at two levels:
The overall f nancial statement level- Risks of material misstatement at the overall financial i
statement level refer to risks of material misstatement that relate pervasively to the financial
statements as a whole and potentially affect many assertions.
The assertion level for classes of transactions, account balances, and disclosures- Risks of
material misstatement at the assertion level are assessed in order to determine the nature,
timing, and extent of further audit procedures necessary to obtain sufficient appropriate audit
evidence. This evidence enables the auditor to express an opinion on the financial statements
at an acceptably low level of audit risk.

Chart of
Detection Risk
DETECTION RISK

Risk that
Meaning Procedures performed by auditor
Won't be able to detect material misstatements

Difference Between IR/CR/DR
IR/CR Functions of

Business & its Nature of ICS
environment TBD

Not dependent Not controlled
on Audit by Auditor
DR Function of Audit

Team Planning Audit Procedures DSR

Dependent on Controlled by
Audit Auditor
Auditor Assesses IR & CR
Inverse Relation Inversely Adjusts DR
Such that ultimate AR is
within acceptable limit

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