Page 93 - CA Inter Bhaskar Vol 1

CA RAVI TAORI Significant risks often relate to significant nonroutine transactions or judgmental matters.
RISK ASSESSMENT AND INTERNAL CONTROL
AUDIT BHASKAR CH 03 - PART 01 magnitude of potential misstatement. The auditor assesses assertions affected by a significant
Definition
Significant risks are inherent risks with both a higher likelihood of occurrence and a higher

risk as higher inherent risk.
Non-routine transactions are transactions that are unusual, due to either size or nature, and that
therefore occur infrequently.
Judgmental matters may include the development of accounting estimates for which there is
significant measurement uncertainty.

Always
The following are always significant risks:
Significant
Risks of material misstatement due to fraud
Risk
Significant transactions with related parties that are outside the normal course of business for the
entity
Risks of Risks of material misstatement may be greater for significant non-routine transactions arising from
Material matters such as the following:
Misstatement
Greater management intervention to specify the accounting treatment.
Greater for
Greater manual intervention for data collection and processing.
Significant
Complex calculations or accounting principles.
Non-Routine
The nature of non-routine transactions, which may make it difficult for the entity to implement
Transactions
effective controls over the risks.
(Examples)
Risks of Risks of material misstatement may be greater for significant judgmental matters that require the
material development of accounting estimates, arising from matters such as the following:
misstatement Accounting principles for accounting estimates or revenue recognition may be subject to differing
Greater for
interpretation.
Significant
Required judgment may be subjective or complex, or require assumptions about the effects of
Judgmental
future events, for example, judgment about fair value.
Matters
(Examples)

(CNO SA315-P1.160) - DOCUMENTING THE RISK (MCQ-Incs.66.3)
Chart
RAP performed Identified and Discussion
understanding Assumed RMM Related Controls concerning
obtained & at FST Level & Engagement
sources Assertion Level Team.

The auditor shall document:
The discussion among the engagement team and the significant decisions reached;
Key elements of the understanding obtained regarding each of the aspects of the entity and its
environment and of each of the internal control components, the sources of information from
which the understanding was obtained; and the risk assessment procedures performed;
The identified and assessed risks of material misstatement at the financial statement level and at
the assertion level ; and
The risks identified, and related controls about which the auditor has obtained an understanding.

www.auditguru.in 03.26