Why does the auditor identify and assess the risks of material misstatement?

 Risks of material misstatement are identified and assessed by the auditor in order to determine the nature, timing and extent of further audit procedures necessary to obtain sufficient appropriate audit evidence. This evidence enables the auditor to express an opinion on the financial statements at an acceptably low level of audit risk.

Risk of material misstatement—The risk that the financial statements are materially misstated prior to audit.

Risk assessment procedures – The audit procedures designed and performed to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels.

The risk assessment procedures include the following:

(a) Inquiries of management and of other appropriate individuals within the company, including individuals within the internal audit function (if the function exists).

(b) Analytical procedures.

(c) Observation and inspection.


ISA 315

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