145, the "spectrum of inherent risk" represents "the degree to which the level of inherent risk varies."Īlthough similar to the low/medium/high or numerical scales that many firms now implement, the spectrum of inherent risk is designed to be a continuum. 145 introduces the definition of inherent risk factors and within that concept, the spectrum of inherent risk.Īs the standard states, "inherent risk factors" are qualitative or quantitative "characteristics of events or conditions that affect the susceptibility to misstatement, whether due to fraud or error, of an assertion about a class of transactions, account balance, or disclosure, before consideration of controls." Further, "depending on the degree to which the inherent risk factors affect the susceptibility of an assertion to misstatement, the level of inherent risk varies on a scale that is referred to as the spectrum of inherent risk."Īs specified in SAS No. The definition of inherent risk, as provided in AU-C Section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards, remains unchanged, but SAS No. Although both the extant and the revised definitions make it clear that the determination of whether an assertion is relevant is made before consideration of related controls, the revised definition underscores the importance of the point by adding the clarification that "the determination is based on inherent risk." This revised definition also clarifies that the root of a relevant assertion is based upon inherent risk. "Likelihood" represents the possibility of a misstatement while "magnitude" represents the possibility of the misstatement being material. The revised definition states that a relevant assertion is "an assertion about a class of transactions, account balance, or disclosure is relevant when it has an identified risk of material misstatement."Īdditionally, the new guidance introduces the concept of assessing the likelihood and magnitude of a misstatement collectively. The extant definition defines a "relevant assertion" as a financial statement assertion having a reasonable possibility of containing misstatements that would cause a material misstatement of the financial statements.
These assertions are used by the auditor to consider the different types of potential misstatements that may occur when "identifying, assessing, and responding to the risks of material misstatement."
The revised definition notes that assertions are representations "… with respect to the recognition, measurement, presentation, and disclosure of information in the financial statements, which are inherent in management, representing that the financial statements are prepared in accordance with the applicable financial reporting framework." The definition of assertions is the same as it was before SAS No. The following highlights some of those changing foundational concepts. With an understanding of the revised definitions, you can strengthen your knowledge of the standard and ultimately strengthen your audits. Rather, according to the Executive Summary of the standard, the standard "clarifies and enhances certain aspects of the identification and assessment of the risks of material misstatement to drive better risk assessment and, therefore, enhance audit quality." These enhancements include changes to certain of the defined concepts. 145 do not change the key concepts underpinning audit risk. The new standard becomes effective for audits of financial statements for periods ending on or after Dec. 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement. To bolster the risk assessment process and improve overall audit quality, the AICPA Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) No.
0 kommentar(er)
