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1) How management’s oversight responsibilities are carried out (e.g. organisational culture and management’s commitment to integrity and ethical values)
? Oversight by TCWG (where separate from management) I got this from the notes , what does oversight refer to?2) How does risk assessment process by the management and how they adress the risk be important to the external auditors. How can that be a problem to the auditor?
3) If a company has a bad information system then it more likely that there is error in the FS because there is no proper recording of the information is this why external auditors also look at the information system?
1) It is responsible for setting the broad strategies and major policies of the organisation and approving the overall organisational structure. The board of directors has the ultimate responsibility for ensuring that an adequate system of internal controls is established and maintained.
2) “The risk assessment process RELEVANT to the preparation of the financial statements …” is a component of a system of internal control (because ISA 315 says so).
This isn’t explained much for AA because it concerns business risk which is NOT examinable for AA, but I will give you a little example.
A company uses harmful chemicals in the manufacturing process which gives rise to toxic waste. Any spillage may result in fines/penalties from the environmental agency. Spillage is a business risk – fines/penalties affect the financial statements (because they are an expense/liability).
Having identified the risks associated with using the chemicals (e.g. accidental spillage, health and safety of employees, contamination of environment …), management will need to put controls in place to reduce those business risks to an acceptable level. If NOT, the risk of material misstatement in the financial statements is increased.
3) Yes – e.g. if controls to “capture” transactions are inadequate, the omissions give rise to misstatement.
Sir for example if the there is no risk assessment process in regards to inventory, there ARE Chances of theft, and if the management fails to asses the risk , they might be unware of the theft and the figure might end up on FS. is this what you mean sir for risk assesment?
Looking at the risk of theft of a company’s assets would be just one aspect of the risk assessment process. For sure, if management does not put controls in place to safeguard assets (not only from theft but from obsolescence/deterioration, etc), there will be a higher risk of material misstatement in the FS than if there were controls to prevent theft/obsolescence/deterioration, etc.
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