Identifying and Assessing the Risks of Material Misstatement
|Current Status||Next Steps|
Exposure draft being developed.
Second quarter of 2018 – Exposure draft to be approved.
OBJECTIVE AND SCOPE OF THIS PROJECT
There are challenges involved in identifying and assessing audit risks for entities — in particular, those that vary in size and nature. Clearer or additional guidance is needed to help address these challenges.
As a result, the International Auditing and Assurance Standards Board (IAASB) is proposing revisions to ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding of the Entity and its Environment.
The IAASB proposal includes establishing more robust requirements and appropriately detailed guidance to drive auditors to perform appropriate risk assessment procedures in accordance with the size and nature of the entity. This would be done by focusing on enhancing the auditor’s approach to understanding the entity and risk assessment activities in light of the changing environment.
It is anticipated that the IAASB will consider whether and how ISA 315, in organization and structure, can be modified to promote a more effective risk assessment.
PROJECT NEWS & DECISION SUMMARIES
AASB Decision Summary – November 28-29, 2016
The AASB provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:
- identifying significant accounts and inherent risks;
- classes of risks and terminology to describe them;
- use of qualitative factors in identification and assessment of inherent risks;
- exploration of including a “spectrum of risk”; and
- understanding how internal controls impact the risk assessment.
AASB Decision Summary – September 12-13, 2016
The AASB discussed issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:
- the components of internal control relevant to the audit;
- assessment of the risk of material misstatement; and
- whether risks should be assessed on a “spectrum of risk”.
The AASB strongly supports this project and intends to setup an advisory group to assist staff and the AASB identify Canadian issues.
AASB Decision Summary – June 13-14, 2016
The AASB provided input to the CPA Canada nominee on the IAASB regarding issues related to the IAASB’s early-stage initiative to consider revisions to ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment, including:
- the possible objectives to be set out in the project proposal;
- considering what drives risk;
- identification of controls relevant to the audit;
- how a walkthrough might be considered within the standard; and
- the relationship between ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements, and ISA 330, The Auditor’s Responses to Assessed Risks, with the proposed project.
The AASB strongly supports the IAASB commencing a project to revise ISA 315 (Revised). Reflecting the importance of the project to a broad range of Canadian practitioners, the AASB decided that an advisory group would be established to assist staff and the AASB by providing Canadian insights on issues raised during the project.
Disclaimer: This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.