STUDENT NAME TAKUDZWA TRYNOS BENJAMIN

STUDENT NUMBER N019842P

DEPARTMENT ACCOUNTING

CLASS BLOCK RELEASE

COURSE AUDIT SKILLS

COURSE CODE CAC 2203

DUE DATE 6 AUGUST 2021

Question

-what impact would a high risk of material misstatement at the overall financial
statement have on the overall audit strategy.

Introduction

-risk of material misstatement is the risk that the financial statements are materially misstated
prior to audit.

-in the context of of ISAE is defined as the risk that the subject matter information is
materially misstated prior to the engagement.

-Audit strategy is the scope, timing and direction of the audit.

-The process of establishing the overall audit strategy assists the auditor to determine subject
to the completion of the auditor's risk assessment procedures, such matters as: [ISA 300
paragraph A8]

.The resources to deploy for specific audit areas, such as the use of appropriately experienced
team members for high risk areas or the involvement of experts on complex matters.

.The amount of resources to allocate to specific audit areas, such as the number of team
members assigned to observe the inventory count at material locations the extent of review of
other auditor's work in the case of group audits or the budget to high risk areas

.when the resources are managed, directed and supervised, such as when team briefing and
debriefing meetings are expected to be held.

Application

-In this case the risk of material misstatement is high at the overall financial statement level.

-Therefore the overall strategy need to be modified, in response to high risk of material
misstatement. This can be achieved by manipulating some of the elements which are
considered when establishing the audit strategy.
-Vital elements considered when establishing the overall audit strategy are scope, timing and
direction. Of all the elements scope is of great concern.These factors are explained in detail in
the following paragraphs.

Scope

-In this case the risk of material misstatement at the overall financial statement level is high.It
implies that the auditor has to increase the depth of the scope of the audit in order to reduce
the risk of material misstatement to an acceptable level and .First and foremost the auditor
can commenc the audit by testing the balances.

-for example the auditor has to increase the number of tests,substantive audit procedures in
order to obtain sufficient appropriate audit evidence which form the basis of the
opinion.Obtaining of sufficient appropriate evidence reduce the risk of expressing an
inappropriate opinion in the circumstances.

-The auditor can also increase the depth of the audit by incorporating techniques such as
unpredictability.For example in this case the auditor can test items of lower value since these
are susceptible to risk of fraud.

Moreso high risk of material misstatement at the overall financial level impact audit strategy
in the following ways: more resources are going to be deployed for specific audit areas.For
example the auditor can assign appropriately experienced team members for high risk areas.

- Use of experts on complex matters.For example those matters which involve significant use
of subjective judgement.Examples of such matters are estimation of bad debts ,contingent
liabilities.However the auditor can mitigate the misstatement arising from such matters by
use of experts(independent) and then investigate any variances between the estimates
provided by management and those provided by the experts.

Consultation- the auditor can also consult on difficult and contentious matters,for example
management can provide the auditor with information that is difficult to interpret
especially ,when fraud is taking place within the entity.

.Determination of the amount of resources to allocate to specific audit areas,such as number

of team members assigned to observe inventory counting at material locations .If risk of
material misstatement is high ,it implies that more engagement team members are going to be
allocated to their specific areas of high risk.

-When the resources are managed, directed and supervised. Such as when the team briefing
and debriefing meetings are expected to be held. This will enhance communication among
engagement team members throughout the audit of financial statements. Apart from that, it
enables engagement team members to communicate their findings at early stages which is
vital to decision making, concerning matters such as change to a planned audit approach.

.Evidence provided by the client may not relied upon especially when the risk of material
misstatement is high.The auditor will go an extra mile by confirming with third parties ,for
example the existing balances of trade debtors in financial statements.

.Another overall impact of high risk of material misstatement on overall strategy is that the
auditor may opt not to rely on management representations.For example if management are
suspected to be involved in fraud.

References:

International Standard on Auditing

IAASB -Handbook

www.researchgate.com

www.wikkiaccounting.com