Risk of material misstatement
The risk of material misstatement is the risk that financial statements are materially misstated before audit. The auditor identifies and assesses risks at financial-statement and assertion levels; assertion-level risk involves inherent risk and control risk. The assessment directs the nature, timing and extent of responses.
Worked example
A manual year-end journal process controlled by one senior officer creates a risk of management override affecting several accounts.
Common mistake
Do not include detection risk in the pre-audit risk of material misstatement; detection risk relates to the auditor’s procedures.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AA | Direct | September 2026–June 2027 |
| ACCA | AAA (INT) | Direct | September 2026–June 2027 |