Risk Based Approach
Risk Based Approach
Risk Based Approach
CR
-no reliance
-partial reliance
-high reliance
DR
-low
-moderate
-high
*CR
Risk that material misstatement will not be prevented or detected and
corrected by the client's IC.
*DR
The risk to not detect a material misstatement that exists in FS
* Control is partly your control, you have control to rely on the controls
*ALL OF THE ACCOUNTS ARE ASSUMED NORMAL= ASSUMED ROMM
*MANAGEMENT OVERRIDE IS ALWAYS "SIGNIFICANT"
-there is no amount procedures you can do to reduce the risk or tolerate it
*RISK OF FRAUD (REBUTTABLE RISK)
- SIGNIFICANT
*acceptance
*terms of engagement
*mobilize engagement team
*attending a team planning meeting
Obtaining Evidence
1. Control testing
2. TOD
3. Substantive testing
*Test of Control
1. Identify Control
2. Evaluate control if operating effectively
3.
*Substantive procedures
1. Vouching (source to
2. Tracing
-must be performed to do assert all of the FS assertions
*Test of details
-transactional
-use sampling techniques
A. Targeted testing (most preferred)
- not used if homogenous and too many samples
B. Non statistical
a. Regular
b. Supplemental
c. 2 way revenue approach
-must perform target test
C. Accept Reject
-not used to test valuation and accuracy
-use to test attributes
*Substantive Analytical Procedures
- required in planning and completion
1. Assess reliability of data and develop expectations
- If the source is internal must have rigorous assessment of data
2. Define threshold
- may be your materiality threshold (overall, performance)
- must be defined
3. Compute the difference
4. Investigate significant differences
- must be corroborated with other evidence