The Impact of Risk at the Financial Statement Level
by AccountingWeb on
The subjective level of risk at the financial statement level, best described as high or low, can significantly affect the audit strategy, including the nature, extent and timing of procedures, and the staffing and supervision of the engagement. Procedures: High risk at the financial statement level calls for more reliable procedures, increased sample sizes or greater audit coverage of the dollar amount of account balances and performing procedures as of the client’s fiscal yearend. Low risk will permit less reliable procedures, smaller sample sizes or lesser audit coverage of account balances and performing procedures before yearend. In the discussions of materiality concepts and sampling decisions later in these materials, we’ll consider the procedural impact of high and low risk at the financial statement level. Staffing and supervision: Responses to high risk at the financial statement level will include assigning more experienced engagement personnel to the engagement and/or increased executive supervision. Low risk will permit less experienced personnel and/or less executive supervision. Because assigning personnel to engagements is one of the elements of quality control in SQCS No. 7, firm administrative or engagement files should document these decisions during planning.