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SA 315 IDENTIFYING & assessing ROMM

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Hi let us discuss SA 315 Idenfying and assessing the risk of material mis-statement Short form is ROMM By understanding the entity and its environment Let us discuss some basic part what is risk of material Mis statement? A Mis statement in Financial statements prior to the audit Due to the product of or due to the impact of Inherent risk and control risk Inherent Risk is a risk which is attached to the entity And the environment in which it operates which Cannot be curtailed or reduced by manual Interventions And control risk is related to internal control which is designed Implemented or maintained for some particular objects Or purpose failed to do so will Result in to the situation risk of material Mis statement abbreviations ROMM Abbreviations ROMM which is a product which is a combination of Both inherent risk and control risk ROMM = The inherent risk +control risk Let us moves in to the Standard part what is the object of this Standard? The object of this Standard is to identify After identification After the identification assess the ROMM Risk of material mis-statement in to HIGH category LOW category and Medium category what is the high category of ROMM? Risk of material mis-statement if internal control Risk is higher and inherent Risk is high The combination will be the high romm And Conversely or the opposite way where The inherent risk is low and control risk is also low Where leads to a situation of low ROMM In case where high ROMM situations Auditor required to apply more Substantive audit procedures than the low ROMM This standards requires the auditor How he has responded How he responded for the assesed risks Apart from this let us moves in to the Definition part what is an ASSERTION Which is discussed in many part of this Standards assertion is a Representation by the management Either expressly or implied manner Those representation were Embodied in the financial statement Next is what is a business risk business risk is Resulting from Significant events, conditions, circumstances circumstance or actions or in actions which have an adverse impacts on entities goals to achieve its objects and what is an Internal Controls internal control is a "PROCESS" a "PROCESS" that process is designed and implemented and maintained by the Management or TCWG for following two purpose Purpose Number 1 to obtain a reasonable assurance of entities achieve its object purpose number 2 to ensure the reliability of Financial statement and financial reporting to Safe guard the assets of the organization to ensure the effectiveness and efficiency within which operations are carried out and to ensure the compliance with the Laws and regulations which have High Impacts on the risk of material mis- statement on occasion of non compliance of Laws and regulations which will Ultimately have an impacts on the "Going Concern" Assumptions next we will discuss about the risk assessment procedure how it is carried on risk assessment procedure generally carried out by the auditor to the Inquiry with the management any other person who have adequate who have adequate knowledge, analytical procedure and observations and inquires for risk assessment process audit can be classified in to Two (2) fresh audit and recurring audit as far as the new, fresh audit is concerned before accepting the audit engagement under SA 210 auditor required to assess both the inherent Risk and Control risk inherent risk and control risk to assess the ROMM risk of material mi- statement through test of controls and through the information about the information concerning about the entity and its environment for high risk case may be better to withdraw from the engagement and as far as the recurring audit is concerned where auditor might be carried out the same partner may be carried out the audit for the previous financial period and he is carrying on the current financial year in those situations the experience gained during the previous periods is sufficient to understand the about the entity and its environment a great extent if the auditor carried out some other engagement other than the statutory audit also in a position to understand about the entity and its environment if some other engagement team of the same firm of the partner then discussion with them will give an insight of the entity and its environment let us moves in to the other parts the part the next part is discuss with How to identify the entity and its environment the entity and its environment this is through a general understanding of the relevant industry the relevant regulatory and other external factors the critical other information concerning the entity such as its operations, its ownership and governance structure the way the investments are made the way the capital structure and financial structure entities selection of appropriate accounting policies and and the changes happened therein entities strategies and procedure for identification of business risk which have a significant impacts on the ROMM risk of material mis-statement ROMM on financial statement and measure and review of the financial reporting pattern all these will give an insight in to the entity and its environment lets we moves in to the other area of control aspects auditor should understand those controls which are "RELEVANT" for the purpose of audit only those controls mostly all the controls most of the controls " RELEVANT for the purpose of audit are centered around, centered around the Financial reporting However, all the controls which is centered around to the internal controls system is not relevant for the purpose of audit next evaluation of the design of the internal control system the first stage of internal control is design of internal control system auditor have to evaluate the design and ensure that all the procedure mentioned therein has "Adequately be complied with nature and extent of understanding the "RELEVANT" controls auditor have to evaluate whether the management and TCWG has has maintained and created an environment environment of Honesty and ethical requirement Test of Strength of controls of internal control will proves the strength in the strength in other component of internal controls so it is required to assess the control environments auditor need to estimate , evaluate the entities risk assessment procedure auditor has to evaluate and identify whether the entity have identified and assessed the risk which is pertains to the financial reporting , assess the significant assess its significance, estimate its likelihood of occurrence and decisions as to to the actions taken to address those risks, if the entity have this procedure then it is the duty of an auditor to evalute to obtain an understanding of the systems and results there of if the entity does not have such system of identification of risk especially business risk then it is the duty of an auditor to discuss with the management and and assess whether the business risk pertains to the financial reporting are identified and actions taken to address those risks the understanding of the informations about the internal technology systems are highly relevant example what kind of complexity , nature of transactions are taken place in to the system auditor has to do in those situations auditor has to understand the "Class of transactions the procedure with within both the manual and IT sessions , IT interventions through which How? the transactions are "Initiated", initiated, Recorded,processed and reported reported in the financial systems the relevant accounting records and how the system captures the events and conditions other than events and conditions other than the transactions other than transactions that are significant for the financial reporting purpose the financial reporting process and the controls surroundings around the "JOURNALS" all these are all these are important information to Test the control environment next is the communication channels, auditor auditor has to evaluate or determine How How? the communications taken place between management and "Those Charges With Governance" ( TCWG) similarly similarly, How the communication taken place with the extrenal external regulatory board and authorities Next is monitoring monitoring controls , the auditor has to determine has to determine the activities that the entity is entity is carried out to monitor the control activities the source of information and the reliability of the reliability of such information and the last segment is the last segment is to identifying and assessing the risk of material mis- statement the auditor has to assess of material mis statement at financial financial statement level or the assertions levels the assertion level for the class of transactions, the class of transactions records or disclosure for the purpose of for the purpose of designing the appropriate audit procedure appropriate audit procedure for this purpose auditor has to do the to do the following steps , identify the risk identify the risk, assess the risk is significant and materials significant and materiality and relate the identified risk to relate the identified risk to the assertion level, what can go wrong what can go wrong with assertion level and their likelihood Likelihood of mis-statement in the financial statement Risk which requires auditors special attention Following are the Risks, Risk Number one whether the risk is whether the risk is risk of "FRAUD", whether the risk is whether the risk is related with significant changes in accounting, in accounting, or economic changes economic changes , whether the risk is related with significant transactions with significant transactions with " Related parties" whether the risk is related to whether the risk is related with significant significant unusual transactions, whether the subjectivity involved subjectivity involved in measuring the financial statement tranactions all those situation, auditor required to pay more attention more attentions , revision of risk assessment process ? risk assessment process , auditors risk assessment will change will change at the assertion levels during the conduct of his audit his audit by obtaining the additional audit evidence whatever he whatever he has assessed earlier need to be revised based based on the additional audit evidence and the final part is the documentation part. what are the matters required required to be documented? auditor shall document the document the discussion among the engagement teams and the key and the key element of information regarding the entity and the environment in which it operated, the identified risks THIS IS OUR SMALL DISCUSSION.... 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Video Details

Duration: 12 minutes and 6 seconds
Language: English
License: Dotsub - Standard License
Genre: None
Views: 6
Posted by: mvivekacadotsub on Apr 9, 2018

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