Page 78 - CA Inter Bhaskar Vol 1

RISK ASSESSMENT AND INTERNAL CONTROL CA RAVI TAORI

Def nitioni The audit procedures performed to obtain an understanding of the entity and its environment, including
the entity's internal control, to identify and assess the risks of material misstatement, whether due to
fraud or error, at the financial statement and assertion levels.

Risk assessment procedure - a basis for the identif cation and assessment of risks of material i
misstatement at the f nancial statement and assertion levelsi AUDIT BHASKAR CH 03 - PART 01
The auditor shall perform risk assessment procedures to provide a basis for the identification and
assessment of risks of material misstatement at the financial statement and assertion levels.
Risk assessment procedures by themselves, however, do not provide sufficient appropriate audit
evidence on which to base the audit opinion.

What is The risk assessment procedures shall include the following:
included in Inquiries of management and of others within the entity who in the auditor's judgment may have
Risk information that is likely to assist in identifying risks of material misstatement due to fraud or
Assessment
Procedures? error.
(MCQ- Analytical procedures.
Incs.10.4) Observation and inspection.

Inquiries of Much of the information obtained by the auditor's inquiries is obtained from management and those
Management responsible for financial reporting. However, the auditor may also obtain information, or a different
and Others perspective in identifying risks of material misstatement, through inquiries of others within the entity
Within the and other employees with different levels of authority.
Entity
(QNO- Inquiries directed towards those charged with governance may help the auditor understand the
315.05.50) 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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