Risk Assessments

Engagement Letter

Prepared by an auditor and acknowledged by a client before the audit begins.

Risk assessment phase

Understanding the client, Risk identification, Risk materiality assessment, developing an audit strategy

Risk Response phase

Test of controls Substantive procedures

Reporting phase

Conclusion and forming an opinion

Assessing

is something you look at from afar and decide if its good or bad

Accepts

is setting your risk appetite for that

Professional skepticism

means auditors maintain a questioning mind and thoroughly investigate all evidence presented by the client.

Risk of Material Misstatement (RMM)

Risk that the financial statements are materially misstated prior to the audit

What are the two subcategories of RMM

Inherent risk(IR) and control risk(CR)

Inherent Risk

There is always the risk of error in any accounting transactions or balances. It refers to the general susceptibility of the account being MM before confirmation of internal controls(Water droplets)

IR is Accept or Assess

Assess

Leads to greater IR