What are the brief aspects of identifying and assessing the risk of material misstatement in financi

1) Identify risks throughout the process of understanding the auditee and its environment, and consider the various types of transactions, account balances and presentations. Certified Public Accountant.

Risk assessments should be applied.

Procedures to identify risks throughout the process of understanding the auditee and its environment, and to link the identified risks to the types of transactions, account balances and presentations.

and 2) link the identified risks to areas where misstatement is likely to occur at the level of identification.

3) Consider whether the identified risk is significant. Whether the risk is significant refers to the severity of the consequences caused by the risk. If the sales difficulties cause the market of the product to decline, in addition to considering the factors of the decline in the product market, the certified public accountant should also consider the extent of the decline in the product market, the proportion of the product in the product of the audited unit, etc., to determine the identified risks to the financial statements.

whether the impact is significant.

4) consider the likelihood that the identified risks could lead to material misstatement in the financial statements. CPAs also need to consider whether the risks identified above would result in material misstatement of the financial statements. For example, consider the book balance of inventory.

Whether it is significant and whether the provision for inventory decline has been properly made.

Wait. In some cases, the risks identified are significant but do not result in material misstatement in the financial statements.

The CPA should use the information obtained from the implementation of the risk assessment process, including audit evidence obtained in evaluating the design of controls and determining whether they are being implemented, as audit evidence to support the results of the risk assessment. Based on the results of the risk assessment, the certified public accountant shall determine the nature, timing and scope of the further audit procedures to be conducted.

1 Understand the industry status, legal and regulatory environment and other external factors of the audited entity 2 Understand the nature of the audited entity.

3. Understand the selection and application of accounting policies by the audited entity.

4. The objectives, strategies and related operational risks of the audited entity.

5. Measurement and evaluation of the financial performance of the audited entity.

6 Internal control of the audited entity.

There are significant operational risks in the case of material misstatement risks at the financial statement level; weak control environment; frequent replacement of personnel in key positions; information technology general control deficiencies; management overrides internal controls; risk of fraud; Significant doubts about the ability to continue as a going concern. the nature of the risk to be considered in assessing the risk of material misstatement; the scale of the misstatement; Likelihood of occurrence.

Extended information: 1. In the whole process of understanding the audited entity and its environment, combine the consideration of various transactions, account balances and disclosures to identify risks. Link the identified risks to areas where misstatement is likely to occur at the level of identification. Assess the risks identified and assess whether they are relevant more broadly to the financial statements as a whole, potentially influencing multiple determinations.

Consider the likelihood of a misstatement occurring, and whether the potential misstatement is significant enough to cause a material misstatement.

2. The risk of material misstatement can be divided into the risk of material misstatement at the identification level and the risk of material misstatement at the level of financial statements. The risk of material misstatement may be related to the determination of a particular type of transaction, account balance and disclosure, or it may be broadly related to the financial statements as a whole, which in turn may affect multiple determinations. During the risk assessment process, auditors need to identify the level of material misstatement risk, and the risk of material misstatement at the financial statement level is more serious when the auditee is at the level of financial statements, and the auditor may not even accept the commission when the misstatement is extensive.

3. When assessing the risk of material misstatement, the certified public accountant should implement the whole process of understanding the audited entity and its environment, combined with the various transactions, account balances and disclosures in the financial statements.

4. Assess the identified risks and evaluate whether they relate more broadly to the financial statements as a whole, potentially influencing multiple determinations. For example, in the process of risk assessment, the auditors found that the audited unit had lost important customers this year, and 80% of the company's revenue came from transactions with the customer, but this year's operating income did not change significantly compared with previous years, and the misstatement of the audited unit may be related to the financial statements as a whole.

Matters that are likely to lead to the risk of material misstatement at the financial statement level include: weak control environment (management integrity issues, professional competence issues, unreasonable corporate governance structure, governance participation in management, etc.); Doing business in unstable countries and regions; There is a problem with the liquidity of the asset; churn of key customers; limited financing capacity; the adoption of new accounting standards or the introduction of new accounting information systems; Insolvency, inability to repay debts due and other matters that give rise to significant doubts about the ability to continue as a going concern.

Hope it helps.

It is usually related to the control environment and has a broad connection to the financial statements as a whole, which may affect a number of determinations, but it is difficult to define the specific determinations for certain types of transactions, account balances, and presentations.

Chinese Certified Public Accountants Auditing Standard No. 1141 - Consideration of Fraud in the Audit of Financial Statements

Article 18 Due to the following inherent limitations, even if the audit work is properly planned and carried out in accordance with the provisions of the auditing standards, the certified public accountant cannot obtain absolute assurance that the financial statements as a whole are free of material misstatement:

1) the use of selective testing methods;

ii) the inherent limitations of internal controls;

iii) most of the audit evidence is persuasive rather than conclusive;

4) The audit work carried out for the purpose of forming the audit opinion involves a large number of judgments;

5) Certain transactions and events of a special nature may affect the persuasiveness of the audit evidence.

Matters that are likely to lead to the risk of material misstatement at the financial statement level include: weak control environment (management integrity issues, professional competence issues, unreasonable corporate governance structure, governance participation in management, etc.); Doing business in unstable countries and regions; There is a problem with the liquidity of the asset; churn of key customers; limited financing capacity; the adoption of new accounting standards or the introduction of new accounting information systems; Insolvency, inability to repay debts due and other matters that give rise to significant doubts about the ability to continue as a going concern.

Hope it helps.

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The certified public accountant shall implement risk assessment procedures such as questioning the management of the audited entity and other relevant internal personnel, analysis procedures, observation and inspection, etc., to understand the auditee and its environment from the following aspects:

1. Industry conditions, legal and regulatory environment, and other external factors;

2. The nature of the audited unit;

3. The selection and application of accounting policies by the audited unit;

4. The objectives, strategies and related business risks of the audited unit;

5. Measurement and evaluation of the financial performance of the audited unit;

6 Internal control of the audited entity.

The main factors to consider when understanding and evaluating general control activities may include:

1) Whether the main business activities of the audited entity have the necessary control policies and procedures;

2) Whether the management has clear objectives in terms of budget, profit and other financial and operating performance, within the audited entity. whether these objectives are clearly documented, communicated, and actively monitored;

3) whether there is a planned and reported roll-up system to identify deviations from target performance and report such variances to the appropriate level of management;

4) Whether the discrepancies are investigated by the appropriate level of management and appropriate corrective actions are taken in a timely manner;

5) The extent to which the responsibilities of different personnel should be separated. to reduce the risk of fraud and misconduct;

6) Whether the data in the accounting system is regularly checked with the physical assets;

7) whether appropriate safeguards are in place to prevent unauthorized access to documents, records, and assets;

8) Whether there is an information security functional department responsible for monitoring information security policies and procedures.