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Risk Assessment, Materiality, Audit Risks = IR x CR x DR, Fraud - Coggle…
Risk Assessment
Professional Judgement
Application of relevant training, knowledge and experience in making informed decision about the courses of action that are appropriate in the circumstances of the audit engagement.
Professional skepticism
Attitude of questioning mind, being alert to conditions that may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.
Definition
Identification of key areas that are susceptible to material misstatement in the financial statement and adequately investigated and tested during audit.
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Materiality
Information is material if it impacts on the decision-making process of users of the financial report.
Fraud
An intentional act done by one or more individuals among management, those charged with governance, employees or third parties involving the use of deception to obtain an unjust or illegal advantage.
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Written Representation
A letter prepared by auditor signed by director of the company, to formalised all the verbal confirmation made by the directors in respond to auditor's queries during the audit process.
Materiality
Information is material if it impacts on the decision-making process of users of the financial report.
Guideline and Benchmark of Materiality:
- 0% to <5% = immaterial
- 5% to <10% = professional judgement
10% = material
Qualitative materiality nature of the items:
- Fraud
- Non-compliance with laws
- Related party transactions
- Change of accounting methods
Quantitative Materiality Magnitude of Item:
- Set as a % of relevant base
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Fraud
Why frauds are difficult to discover?
- Fraud involves sophisticated schemes designed to conceal it
- Fraud perpetrated by individual in collision
- Manipulate accounting records or override control procedures by management
An intentional act done by one or more individuals among management, those charged with governance, employees or third parties involving the use of deception to obtain an unjust or illegal advantage.