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Audit risks and material misstatement risks

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Audit risks and material misstatement risks

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by MikeLittle.
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  • August 6, 2017 at 12:17 pm #400727
    Ali
    Participant
    • Topics: 6
    • Replies: 2
    • ☆

    What is the difference between the audit risks and material misstatement risk ( some asked as financial statement risk)?
    What is the difference in answering technique of these requirements?

    August 6, 2017 at 12:38 pm #400729
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    Audit risk is the risk that the auditors will issue an inappropriate opinion – normally in the context of a clean opinion where a dirty one was more appropriate

    So it’s a risk that faces the auditor

    Material misstatement risk is a risk that faces those charged with governance and is the name given to the risk that the financial statements will be materially … misstated

    This is therefore a risk that faces management

    Obviously, if there is a risk that the financial statements will be materially misstated, that has an impact on the auditor as they form their opinion as to whether those financial statements may not be showing a true and fair view and thus whether the auditors’ opinion may increasingly be prone to being inappropriate

    before the (relatively) recent revision of the standards, the risk of material misstatement was previously known as two separate risks – control risk and detection risk

    Further, these two separate risks were two thirds of the three risks that collectively were known as audit risk (the third was inherent risk)

    So we were always able to say that inherent risk * control risk * detection risk = audit risk

    Control risk and detection risk have now been rolled into one and re-named ‘risk of material misstatement’

    You ask ‘What is the difference between the audit risks and material misstatement risk’

    Following from the above you should be able to see that risk of material misstatement is an integral element of the risk faced by auditors (audit risk)

    You also ask “What is the difference in answering technique of these requirements?”

    Very simply … none!

    Read the question very carefully making sure that you fully understand the question requirement. Plan an answer accordingly. Re-read the question requirement to ensure that, if you were to write out an answer based on your plan, your answer would RELEVANTLY answer the question that was asked and that it also answers THE WHOLE of the question requirements

    But that’s the same technique for ALL questions in these ACCA examinations

    OK?

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  • The topic ‘Audit risks and material misstatement risks’ is closed to new replies.

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