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i still cant understand the sentence:
“risks should be assessed at FS level and Assertion level”
can u please write a few lines to explain this
thank you
Assertions level: you are looking in detail at the assertions made by each amount in the FS: existence, valuation, compleeness etc.
Financial statement level: you stand back and look at the FS as a whole to see if they appear to provide a true and fair view.
Risk could be assessed by:
1. Knowledge of the business
2. Analytical ProceduresPls, how does these relate?
For example:
If you knew the business only made cash sales, you should be surprised to see receivables.
If a consultancy business had lots on inventory, what is it and why?
If you know the business is an estate agent and property sales are depressed, you should be surprised if revenue increased.
If a powerful competitor has entered the sector, you should be surprised if GP% increases.
Thanks so much!
So if the examination a question comes up
“How can risks be assessed?”
What would be an appropriate answer?-FS and Assertion
Or
-KOB and analytical procedures.Thanks.
Assertions do not describe risks.
Providing a wrong opinion on FS is the what we want to avoid by keeping audit risk low. FS cannot be ignored and analytical procedures are a ways of assessing risk
Note that the control system also plays a part. If it is good, audit risk is lower.
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