PSA 315 Thursday, 11 November 2021 IDENTIFYING AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT ‘THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT Key Points ‘+ Risk assessment procedures shall include the following: {a) Inquiries of management, and of others within the entity who in the auditor's judgment may have information that is likely to assist in identifying risks of material misstatement due to fraud or error. {(b) Analytical procedures. (0) Observation and inspection. ‘+ The auditor will consider if yung information galing sa auditor ni dient is under acceptance or continuance process relevant sa pag identify ng risk of material misstatement. ‘+ Pag may engagement partner na naperform sa other entity, checking also the info if relevant siya ‘+ When the auditor intends to use information obtained from the auditor's previous experience with the entity and from audit procedures performed in previous audits, the auditor shall determine whether changes have occurred since the previous audit that may affect its relevance to the current audit. + The engagement partner and other key engagement team members shall discuss the susceptibility of the entity's financial statements to material misstatement, The Entity and its Environment ‘+ The auditor shall obtain an understanding of the following: a. Relevant industry, regulatory, and other external factors including the applicable financial reporting framework. b. The nature of the entity, including i. its operations ii, its ownership and governance structures The types of investments that the entity is making and plans to make jv. ‘The way that the entity is structured and how it is financed, to enable the auditor to understand the classes of transactions, account balances, and disclosures to be expected in the financial statements. ¢. The entity’s selection and application of accounting policies, including the reasons for changes thereto, (the auditor will evaluate the accounting policies na appropriate sa may business and if consistent itong na aapply.) d. The entity’s objectives and strategies, and those related business risks that may result in risks of material misstatement. . The measurement and review of the entity's financial performance, Entity's internal Control ‘+ The auditor shall obtain an understanding of internal control relevant tothe audit. (kasi di naman lahat ng internal control ay relevant tothe audit and then di naman lahat ng control through financial reporting is also relevant sa audit. In other words pipiliin lang yung ‘mga karapat dapat.) ‘+ When obtaining an understanding of controls that are relevant to the audit, the auditor shall evaluate the design of those controls and determine whether they have been implemented, by performing procedures in addition to inquiry of the entity's personnel. Components of internal Control + Control Environment -the auditor shall obtain understanding of the control environment and evaluate whether, if management of charged with governance created and maintained the honesty and ethical behavior. ifthe strengths in the CE provides appropriate foundation and those other components are not undermined by CE weaknesses. (based on my idea, CE talks about the environment inside the companies and yung atmosphere or culture nila if they do their work ethically.) + The Entity’s risk assessment process - The auditor shall obtain an understanding if the entity follow the process. (take note for the IDEA) ‘© Identifying business risks relevant to financial reporting objectiv ‘© Deciding about actions to address those risks, (pang-apat to sa PSA) ©. Estimating the significance of the risks; ‘©. Assessing the likelihood of their occurrence. © Ifa established yang process na iyan (IDEA), then understanding again sa risk and sa results nito. Ichecheck din ni auditor yung mga risk na hindi nakita ng management and obtaining understanding why they failed to identify it tas, evaluating if the process is appropriate and if may material weakness in entity's risk assessment process. © If sientity not established the process or may iba silang ginawa, si auditor aalamin niya ito kay management if business risk relevant to FR have been identified and paano ito in-addressed. © The auditor know how the entity communicates regarding the responsibilities and significant matters relating to FR including ‘communications between management and those charged with governance, external communications like with regulatory authorities.