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When answering an audit risk or romm question, and the risk relates to an accounting standard eg IAS16 REVAL or IFRS9 FI, does your answer need to include all risks associated with revaluation or all risks associated with FI? (basically, do you need to write all risks associated with the scenario given?)
Or just a well explained risk.Eg:
Reval : risk not all assets in same class have been revaluex.
Ifrs9: its an inherently subjective area and valuations may not be appropriate.Would you get the full 3 marks for above after giving the materiality, treatment, explain risk and impact on FS?
You are not expected to find all risks – but identify the most obvious ones – relevant to the scenario. There could be more than one associated with a specific IFRS – but if only one stands out you don’t need to make up others. For revaluation you would want there to be some hint that not all in the class may have been revalued to suggest that this is a risk. In this case the risk is not that valuations are inherently subjective (indeed – they should be objective) but that the non-revalued stated at cost are likely to be misstated. That could mean understated if an asset that has not been revalued is in fact impaired. Or maybe all the assets in the class have been revalued – but an impairment has “lost” in a net revaluation surplus (instead of recognised in SoFP).
The marking schemes are the best guide to mark allocations – so 1 mark for materiality – 1 mark for the misstatement and 1 mark for explanation/development. Note however that materiality calculations are generally capped. So if you had 5 risks and you made 5 assessments of materiality, this might be capped at 3 marks (see M/J19 sample marking scheme).
If the scenario clearly present 2 or 3. Do we need to address all of them though?
i feel like i spend too much time highlighting risks associated with a particular standard in a given scenario. if 1 mark is given per explanation. can i explain just the one point specifically.
See for example September 2018 note 2 on Intangible Assets. Can I address all costs being capitalised being wrong and explain it well and not address the issue of all the IA being amortized over same useful life.
Thanks
There will always be more risks than need to be addressed to earn the marks – so no – you don’t have to address every risk. That’s one of the (many) reasons why planning is important – so you focus on evaluating the risks you can deal with most competently.
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