Risk Assessment in a Financial Statement Audit
Conform with the new SAS No. 145 to identify and assess risks of material misstatement in a financial statement audit that is performed in accordance with generally accepted auditing standards (GAAS).
Applying SAS No. 145
Understand how to fulfill your responsibilities for identifying and assessing risks of material misstatement in a financial statement audit. This guide particularly helps you focus on how to apply SAS No. 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, to audits of financial statements of less complex entities.
Although SAS No. 145 does not fundamentally change the key concepts underpinning audit risk, it does clarify and enhance certain aspects of the identification and assessment of the risks of material misstatement to drive better risk assessments and therefore enhance audit quality.
SAS No. 145, for example, enhances the following:
- Requirements and guidance related to the auditor’s risk assessment, in particular, obtaining an understanding of the entity’s system of internal control and assessing control risk
- Guidance that addresses the economic, technological, and regulatory aspects of the markets and environment in which entities and audit firms operate
SAS No. 145 also includes the following:
- Revised requirements to evaluate the design of certain controls within the control activities component, including general IT controls, and to determine whether such controls have been implemented (D&I)
- New requirement to separately assess inherent risk and control risk
- A revised definition of significant risks
- New guidance on scalability
- New guidance on maintaining professional skepticism
- A new “stand-back” requirement intended to drive an evaluation of the completeness of the auditor’s identification of significant classes of transactions, account balances, and disclosures
- Revised requirements relating to audit documentation
- A conforming amendment to perform substantive procedures for each relevant assertion of each significant class of transactions, account balance, and disclosure, regardless of the assessed level of control risk
- Changes and revisions to AU-C section 315 due to the issuance of SAS No. 145
- Risk assessment procedures and related activities
- Understanding the entity and its environment and the applicable financial reporting framework
- Understanding the components of the entity’s system of internal control
- Identifying and assessing risks of material misstatement
- Inherent risk factors
- Significant risk
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