ISA 315 (Revised)

Identifying and Assessing the Risks of Material

Misstatement
Fiona Campbell, ISA 315 Task Force Chair & Deputy Chair of the IAASB
IAASB Meeting – New York, USA
Agenda Item 2
September 16, 2019
Page 2
ISA 315 (Revised)‒NEW in September

• Introductory paragraphs
• Public sector
• Automated tools and techniques
‒ Supported by Technology Working Group Q&A
• Translations
• Effective date

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 Summary of CAG Representatives Comments
• Broadly supported the changes to address understandability and length; a few concerns about
use of tables
• Significant risk definition
– “Combination” of likelihood and magnitude – should it rather be the ‘intersection’
– Clarify ‘in rare circumstances’ where may not be a significant risk
• Inherent risk factors – supportive of changes to use fraud risk factors
• Paragraph 39(a)(ii) is confusing, and may go further than intended in particular in relation to
documentation
• Threshold for identifying risks of material misstatement – description in revised ISA 200
conforming amendments clearer
• SMP Committee Representative thanked the IAASB for the opportunity to input to the revisions;
encouraged that the standard is finalized but had the view that a longer implementation period
is needed
• Majority CAG Representatives would like standard finalized (i.e., no re-exposure)
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Offline Comments – Significant Aspects for Further Consideration

• Definition of relevant assertions

• Hanging paragraph – Para 17
• Inherent risk factors and the way we describe consideration of the inherent risk factors in
paragraph 23(c)
• Paragraph 39(a)(ii)
• Threshold for identifying risks of material misstatement (ISA 200 CA)

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ISA 315 (Revised)

Question 3

What are the Board’s views about:

•Definitions
•Requirements
•Application material
•Appendices

Full standard presented in clean – Agenda Item 2-E

(The Task Force Chair will walk through the standard – relevant paragraph
numbers to follow)
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ISA 315 (Revised)‒Introductory Paragraphs

Par # Paragraph # Relevant Application

Material:
2-10 Introductory paragraphs -

Effective Date & Objective to be added back

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ISA 315 (Revised)‒Definitions

Par # Definitions Application

Material

16(b) – Assertions to IT environment A1 – A6

16 (g)

16(h) – Relevant Assertions to System of Internal Control A9 – A10

16(l)

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ISA 315 (Revised)‒Risk Assessment Procedures and Related Activities

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ISA 315 (Revised)‒Understanding the Entity & Its Environment / Applicable Financial Reporting Framework

Par # Requirements Application

Material:

A46a – A78 (Entity &

its Environment)
Understanding the Entity and Its Environment and the Applicable
23 A79 ‒ A82 (Financial
Financial Reporting Framework
Reporting Framework)
A88a ‒ A88d (IRFs)

24 Evaluating the Entity’s Accounting Policies

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ISA 315 (Revised)‒Understanding the Components of the Entity’s System of IC
Par # Requirements Application Material

Understanding the Components of the Entity’s System of Internal Control A89 – A104a

Control Environment, Risk Assessment Process & Entity’s Monitoring of System of

A104a – A104d
IC

28 Understanding the Entity’s Control Environment A106 – A114b

30 ‒ 31 The Entity’s Risk Assessment Process A117 – A120

31A The Entity’s Process for Monitoring the System of Internal Control A123 – A135c

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ISA 315 (Revised)‒Understanding the Components of the Entity’s System of IC
Par # Requirements Application Material

Information System and Control Activities Components A135d – A135m

36 Understanding the Entity’s Information System and Communication A135n – A159a

A160 – A177
39 Control Activities Component A179a – A189 (IT)
A194 – A200 (D&I)

43 Deficiencies in the Entity’s System of Internal Control A200a – A200c

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ISA 315 (Revised)‒Identifying & Assessing the Risks of Material Misstatement
Par # Requirements Application Material

Identifying and Assessing the Risks of Material Misstatement A201 – A206

45, 47, Identify and Assessing Risks of Material Misstatement A206a – A207e (financial
48 statement level)
A208 – A221 (except A211 –
A214) & A226 – A228 (assertion
level)
A221a – A225 (spectrum of risk)

46. Determine Relevant Assertions and Significant Classes of Transactions, A211 – A214
Account Balances and Disclosures

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ISA 315 (Revised)‒Assessing the Risks of Material Misstatement

Par # Requirements Application

Material

49 Determining Significant Risks A228a – A229b

50 Determining Whether Substantive Procedures Alone Cannot Provide Sufficient A231a – A231e
Appropriate Audit Evidence

51 Assessing Control Risk A232 – A235a

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ISA 315 (Revised)

Evaluating Audit Evidence from Risk Assessment Procedures

Par # Requirement Application
Material

51A Evaluating the Audit Evidence from Risk Assessment Procedures A239a – A239c

Stand-back
Par # Requirement Application
Material

52. Stand-back – Material Classes of Transactions, Account Balances or Disclosures A240 – A242
that have Not Been Identified as Significant Classes of Transactions, Account
Balances or Disclosures

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ISA 315 (Revised)

Revision of Risk Assessment

Par # Requirement Application
Material

53 New Inconsistent Information A243

Documentation
Par # Requirement Application
Material

54 Documentation A244 – A248

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ISA 315 (Revised)‒Appendices

Page 17 | Confidential and Proprietary Information

Effective Date

Question 2

What are the Board’s views about the proposed implementation date?

Page 18 | Confidential and Proprietary Information

ISA 315 (Revised) ‒ Conforming Amendments

ISA Conforming Amendments

Overall Objectives of the Independent Auditor and the Conduct of an Audit in
200
Accordance with International Standards on Auditing
The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial
240
Statements
330 The Auditor’s Responses to Assessed Risks
540
Auditing Accounting Estimates and Related Disclosures
(Revised)
Other Various – Supplement to Agenda Item 2-I

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Changing the interpretation of “could” in Definition of
RoMM and re-defining Significant Risks
 ISA 315 ISA 330 High IR/RoMM
Identifying,

IR/RoMM for assertions vary from low/lower to higher/high and significant risks
Assessing and
Responding to FAPs
(ToC) -
TCs -
RoMMs at the address
address
RoMMs
Assertion Level Part of IR
addressed
IR and
reduce
(obtaining
SAAE re
by TCs = OE of TCs)
[- TC] CR
and
Varying levels of confirm Lower to Higher IR/RoMM
CR
IR and RoMMs
RoMM FAPs
Extant ISAs =
IR x CR
IR
IR
(SPs) -
address
(200/315(R)/330) =
RoMMs
IR x (1 - TC)
(obtaining
SAAE re
MM) Zone A
Threshold for reasonable assurance
CR
AR reduced to 'acceptably low level' - SAAE RoMM
obtained Zone B
CR =
part of IR not
addressed by
Threshold for identifying RoMM at TCs = No to low IR/RoMM
assertion level (1 - TC)

Misstatement could occur and could be

material if it occurs:
"could" = "have the possibility to"
AR - Audit Risk | RoMM - Risk of Material Misstatement | IR - Inherent Risk | CR - Control Risk
TCs - Identified Controls for which Auditor Plans to Test OE | [-TC] - Effect of TCs in Reducing CR
FAPs - Further Audit Procedures | ToC - Tests of Controls | OE - Operating Effectiveness
SPs - Substantive Procedures | MM - Material Misstatement | SAAE - Sufficient Appropriate Audit Evidence
 ISA 315 ISA 330 Significant risks
Identifying,

IR/RoMM for assertions vary on Spectrum from low/lower to higher/high risks

Assessing and
Responding to FAPs
(ToC) -
TCs -
RoMMs at the address
address
RoMMs
Assertion Level Part of IR
addressed
IR and
reduce
(obtaining
SAAE re
by TCs = OE of TCs)
[- TC] CR
and
Spectrum of IR confirm Lower to Higher IR/RoMM
CR
and RoMMs
RoMM FAPs
Revised ISAs =
IR x CR
IR
IR
(SPs) -
address
(200/315(R)/330) =
RoMMs
IR x (1 - TC)
(obtaining
SAAE re
Threshold for reasonable assurance MM) Zone A
CR
AR reduced to 'acceptably low level' - SAAE RoMM
obtained
Zone B
CR =
Threshold for identifying RoMM at part of IR not
assertion level addressed by
TCs = No to low IR/RoMM
Misstatement could occur and could be (1 - TC)
material if it occurs:
"could" = "have a reasonable possibility to"

AR - Audit Risk | RoMM - Risk of Material Misstatement | IR - Inherent Risk | CR - Control Risk
TCs - Identified Controls for which Auditor Plans to Test OE | [-TC] - Effect of TCs in Reducing CR
FAPs - Further Audit Procedures | ToC - Tests of Controls | OE - Operating Effectiveness
SPs - Substantive Procedures | MM - Material Misstatement | SAAE - Sufficient Appropriate Audit Evidence