Identifying and Assessing the Risks of MIdentifying and Assessing the Risks of Material Misstatement due to Fraud

Identifying and Assessing the Risks of Material Misstatement due to Fraud

1. In applying ASA 315,[25] the auditor shall:
   1. Identify and assess the risks of material misstatement due to fraud and determine whether they exist at the financial report level, or the assertion level for classes of transactions, account balances and disclosures, taking into account fraud risk factors. (Ref: Para. A113–A114, A116)
   2. Treat those assessed risks of material misstatement due to fraud as significant risks. Accordingly, to the extent not already done so, the auditor shall identify controls that address such significant risks, evaluate whether they have been designed effectively to address the risks of material misstatement, or designed effectively to support the operation of other controls, and determine whether they have been implemented. (Ref: Para. A115)

Risks of Material Misstatement Due to Fraud Related to Management Override of Controls

1. Due to the unpredictable way in which management is able to override controls and irrespective of the auditor’s assessment of the risks of management override of controls, the auditor shall: (Ref: Para. A117–A118)
   1. Treat the risks of management override of controls as risks of material misstatement due to fraud at the financial report level; and
   2. Determine whether such risks affect the assessment of risks at the assertion level.

Risks of Material Misstatement Due to Fraud in Revenue Recognition

1. When identifying and assessing the risks of material misstatement due to fraud, the auditor shall, based on a presumption that there are risks of material misstatement due to fraud in revenue recognition, determine which types of revenue, revenue transactions or relevant assertions give rise to such risks, taking into account related fraud risk factors. (Ref: Para. A119–A125)