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I D E N T I F Y I N G A N DA S S E S S I N G R I S K S O

M A T E R I A L

M I S S T A T E M E N T

P R E S E N T E D B Y: J O A N N E B I L L O N E S

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RISK OF MATERIAL MISSTATEME

Refers to the risk that the nancial statemmaterially misstated and do not preseand fair ie!. The auditor shall identify anthe risks of material misstatement at:

The "nan#ial statement leel; andThe assertion leel for classes of tranaccount balances, and disclosures.

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FINANCIAL STATEMENT LEVELVS. ASSERTIONS LEVEL$INAN%IAL STATE&ENTLE'EL

Refer to risks that relateperasiely to t(e

"nan#ial statements as a!(oleand potentially aectmany assertions.

ASSERTIONS LE'EL

Risks of this nidenti"a)le !it(assertions at the

transactions, accouor disclosure level.

Risks at F levedo"n# and becomassertion level

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AUDITOR MUST

a* Identify ris+s throu$hout the process of oan understandin$ of the entity and its enviro

)* Assess t(e identi"ed ris+s and evaluate%ssertions level

#* Relate t(e identi"ed ris+s to !(at !ron, at the assertion level

d* %onsider t(e li+eli(ood of misstatemen

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ASSESSING RISKS AT TWO LEVE$INAN%IAL STATE&ENTLE'EL

Factors aectin$ the risks:

&ana$ement's (nte$rity

&ana$ement's e)perienceand kno"led$e

*ressure on &ana$ement

+ature of entity

ASSERTIONS LE'EL

Factors ae

usceptibility of

omple)ity oftransactions

Transactions noto routine proce

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AUDITORS RESPONSES TO RISKS

*R/ F (0/+T(F1(+2 R(3 F &%T/R(%4 &(T

5a and b6

0esi$n and performance of audit procedures tsu-#ient. appropriate eiden#e

/se of information ,at(ered as audit eisupport the risk assessment

+ature, timin$ and e)tent of furt(er pro#edures aon. and are responsie to t(e assessed ris+somisstatement at assertion level

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AUDITORS RESPONSES TO RISKS

R/4%T(+2 +TR4 T %/RT(+

5c and d6

%uditor may identify t(e #ontrols that areprevent, or detect and correct, material missta

specic assertions Relate 0some* #ontrols to assertions in t(e #

pro#esses and systemsin "hich they e)ist becauusually treat risks in $roups

Determine if #ontrols are eit(er direindire#tly related to an assertion

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M I S S T A T E M E N T

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MISSTATEMENT DEFINED

%s dened in *% 789, 2&isstatement is a d)et!een t(e amount. #lassi"#ation. presentdis#losure of a reported "nan#ial statement t(e amount. #lassi"#ation. presentation. or dt(at is re4uired for t(e item to )e in a##orda

t(e appli#a)le "nan#ial reportin, frame!or+56 &isstatements can arise from error or fraud.

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TYPES OF MISSTATEMENT

&isstatements may emanate from:

/rror

Fraud

+oncompliance "ith 4a"s and Re$ulations

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ERROR VS. FRAUDERROR nintentional

/)amples:

&athematical or clericalmistakes in underlyin$

records and data versi$ht or

misinterpretation of factsresultin$ in incorrectestimates

&istakes in application of

accountin$ policies

$RA/D

(nvolves motiper#eied o

Fraudulent nareportin$

&isappropriatio50efalcation6

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TYPES OF FRAUD$RA/D/LENT $INAN%IALREPORTIN7

&isstatement in F

!&ana$ement fraud#

&ay involve:

&anipulationfalsicationalteration

of records or supportin$ documents

&isrepresentation or intentionalomission of vents or transactions

Recordin$ of transactions "ithoutsubstance

(ntentional misapplication ofaccountin$ policies

&ISAPPROPRIATIONASSETS 0DE$AL%AT

sually accompanied by false or m

/mbe

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NONCOMPLIANCE WITH LAWS ANDREGULATIONS

+oncompliance: omission or commission by a

client contrary to prevailin$ la"s or re$ulation

/)amples:

Ta) evasion

>iolation of environmental protection la"s

(nside tradin$ of securities

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A U D I T O R S

R E S P O N S I B I L I T

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AUDITORS RESPONSIBILITY:ERROR AND FRAUD

*4%++(+2

&ake in?uiries of mana$ement

0esi$n audit procedures based on risks

T/T(+2

*erform assessment procedures

%ssess if fraud or error

&*4/T(+

btain mana$ement's "ritten representation for its responsibilities

/FF/T + %0(TR' R/*RT

%uditor may re?uest revision of F

%uditor may either ?ualify or disclaim his opinion

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AUDITORS RESPONSIBILITY:NONCOMPLIANCE

*4%++(+2

btain $eneral understandin$ of le$al and re$ulatory frame"ork

0esi$n procedures to identify noncompliance and evidences of com

T/T(+2

/valuate possible eects on F

0ocument ndin$s, discuss "ith mana$ement, and consider implic

&*4/T(+

btain mana$ement's "ritten representation for its responsibilities

/FF/T + %0(TR' R/*RT

%uditor may re?uest revision of F

%uditor may either ?ualify or disclaim his opinion

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S I G N I F I C A N T

R I S K S

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RISKS THAT REQUIRES SPECIALAUDIT CONSIDERATION Si,ni"#ant ris+ is an identied and assessed risk of

misstatement that, in the auditor's -ud$ment, require

audit consideration

(dentifyin$ si$nicant risks:

ris+ of fraud

ris+ is related to re#entsi,ni"#ant e#onomi#.a##ountin, or ot(erdeelopments

#omple1 of transa#tions

si,ni"#ant transa#tions !it(

related parties

de,ree of su)8e#t

measurement ofinformation

si,ni"#ant transaare outside t(#ourse of )usinesto )e unusual

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C O N D I T I O N S A N D E V E

T H A T M A Y I N D I C A T E R

O F M A T E R I A L

M I S S T A T E M E N T

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i$nicant chan$es in the entity 5

ac?uisitions and reor$ani

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E N D O F R E P O R