CAS 315: Identifying and assessing the risks of material misstatement through understanding the entity and its environment Scope: This Canadian Auditing Standard (CAS) deals with the auditor’s responsibility to identify and assess the risks of material misstatement in the financial statements‚ through understanding the entity and its environment‚ including the entity’s internal control. Effective Date: Effective for audits of F/S for periods ending on or after December 14‚ 2010. Objective:
Premium
concept and auditors do not make legal determinations of whether fraud has occurred. Rather‚ the auditor’s interest specifically relates to acts that result in a material misstatement of the financial statements. The primary factor that distinguishes fraud from error is whether the underlying action that results in the misstatement of the
Premium Generally Accepted Accounting Principles Balance sheet Income statement
3. Contract Law “Is My Agreement an Enforceable Contract?” The Law of Contract involves answering 4 questions: (1) Is my agreement an enforceable contract? Are all of the elements of a contract present. (2) If so‚ what does it require me (and the other party) to do? - What “promises” have become terms of the contract. (3) Can I get out of it (without paying some form of penalty)? - Was the formation of the contract defective in some way (ie were there any ‘vitiating elements’ present)
Premium Contract
*risk can not be eliminated because not all of evidence being examine. Inherent Risk is a measure of the auditor’s assessment of the likelihood that there are material misstatements in account balance before considering the effectiveness of internal control. If the auditor concludes that there is a high likelihood of material misstatement in A/R due to changing of economic conditions‚ the auditor concludes that inherent risk for A/R is high. Planning an Audit and Designing an Audit Approach I. Accept
Premium Auditing Internal control Risk
approval of period-ending journal entries‚ detective control - discover misstatements monthly misstatements and corrective control – remedy the situation (maintain key copies of transaction and transaction files for corrections) Functions are complementary to achieve the same objective‚ redundant – same financial statement assertion Compensating – reduces the risk that an existing /potential control weakness will result in misstatement Internal control of an organization is viewed including 5 components
Premium Auditing Financial audit
entity’s ability to continue as a going concern‚ and to indicate the presence of possible misstatements. The audit approach for Northwest Bank calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. A misstatement of $525‚000 is considered material. The audit team developed an expectation for loan
Premium Audit Financial audit Auditing
the report given by the respondents‚ Hedley placed additional orders on behalf of Easipower which eventually resulted in a loss of £17‚000. Hedley then brought an action against the respondents for damages under the tort of negligence: Held: A negligent‚ although honest‚ misrepresentation‚ may give rise to an action for damages for financial loss even if there was no contract between the advisor and the advisee and no fiduciary relationship. The law will imply a duty of care when the advisee seeks
Premium Tort Duty of care Negligence
Tutorial 3 – Ch 9 Malaysia edition 9-26 a. The direct projection of error = (misstatements/amount) sampled x population value. ($10‚000/$1‚000‚000) x $2‚500‚000 = $25‚000 b. No‚ the overall financial statements are not acceptable. Including the projected error for inventory‚ the total overstatement errors are $58‚000‚ which exceeds materiality of $50‚000. c. The auditor should either propose an audit adjustment so that the unadjusted statement amount is less than materiality‚ and/or
Premium Auditing Risk Financial audit
Fundamental concepts of f/s audit Materiality misstatement of accounting information. is a matter of professional judgment Audit risk The auditor expresses an inappropriate audit opinion when the financial statements are materially misstated‚ Evidence (more than “per discussion with client) Major phrases of audit: Client acceptance/continuance; Preliminary engagement activities; Establish materiality and assess risks; Plan the audit ;Consider and audit internal control; Audit business processes
Premium Auditing Financial audit
sales and Net Income AAR can decrease as risk of misstatements on the Income Statement increases. External users may rely heavily on reported Net Income. Overstated net income implies assertion of occurrence‚ completeness and accuracy.. 2. Industry issue: Sales’ price gone down to compete with U.S’s market Increase the incentive to smoothing the net income make the financial statement looks better. AAR can decrease as risk of misstatements on the Income Statement increases. External users
Premium Balance sheet Generally Accepted Accounting Principles Inventory