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Hi tutor,
I was wondering when answering a question on audit risk do you need to explain the accounting standards at all?
I assumed you had to explain what the risk what and explain the account standard and it’s correct treatment?
Thank you in advance
You don’t have to quote from them, but you have to know the principles of all the examinable docs to explain adequately what is the risk.
For example, if the audit client was constructing assets and had loans, you could just write “There is a risk of material misstatement due to borrowing costs.”
You would have to say, for example, that there is a risk of understatement of assets/overstatement of expenses/profit if borrowing costs are not capitalised. i.e. showing that you know that the correct treatment is to capitalise borrowing costs.
Or you might say there is a risk of overstatement of assets/understatement of expenses/profit if the the interest rate used is overstated/interest is capitalised before construction starts or after construction end or during suspension of activity.
Please see the lecture for Chapter 14 if you haven’t already done so https://opentuition.com/acca/aaa/acca-advanced-audit-assurance-aaa-lectures
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