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Hi Mike i want to ask one thing that if the exam question asks to identify explain principal audit risks than what risks exactly should I include ie inherent risks Or control risk or detection risk or a combination of these?
I think I would go for both material misstatement risk AND detection risk.
MM risk is the aggregation of inherent risk and control risk but you MUST make sure that you refer to material misstatement risk rather than inherent and control risks
Thanks for the prompt reply Mike, now my mind has gotten clearer on this matter
When a question requirement asking for Principal Audit risk or Risk of Material misstatement , how should this be analysed.
Can the answer look at it as for : assets & expenses there is a risk of overstatement and
liability & income there is a risk of understatementor i can say that there may be a risk of misstatement if for example provisions are not applied to year end balances on receivable. Or
look at the item and say receivables may be overstated due to provisions not applied to year end balancesMateriality what are the bases to determine materiality :
IN BPP Text the common approach is the average of : revenue 0.5 % – 1 %, total assets 1% to 2% and profit before tax 5%
this is an acceptable approach to determine materiality. Additionally how performance materiality is computed and apply to audits
when considering an audit opinion to be issued :
what is a disclaimer opinion
what is an adverse opinion
additionally, in the context of opinion what pervasive mean. In my view an audit is base on pervasive evidence rather than conclusive evidence meaning that only sample items are tested and not all items are tested 100%
re your post at 3.13, I think that either approach is acceptable
re your post at 3.18 “this is an acceptable approach to determine materiality. Additionally how performance materiality is computed and apply to audits” the first part of the afore-posted quote is a statement – it’s not a question. If you meant “Is this is an acceptable approach to determine materiality?” then if BPP say that it’s a common approach, and I assume that that statement is made with an element of authority – for example by a recently qualified former employee of a Big 4 firm – then I have to assume that it is a generally accepted audit approach. Personally I find it hard to see how such an average could be applied. It automatically means that the materiality level is BELOW what would in isolation, when compared with eg total assets, be considered to be material but, because of averaging, is ignored as being below the averaged materiality level.
As for your post at 3.23 …..well! This is a basic F8 level question!
From the latter part of your post, it seems that you are confusing the word “pervasive” with the word “persuasive”
Now that is pointed out to you, it may possibly clear up your question about “What is a disclaimer opinion?” and “What is an adverse opinion?”
If not, post again
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