Generally accepted auditing standards sas ssars

Suppose, for example, you identify a significant risk for the allowance for uncollectible receivables, an estimate, due the concerns about the valuation assertion (because it's complex and subjective see inherent risk factors below). After all, the definition says close to the upper end of the spectrum of inherent ris k. So donвЂ™t make the mistake of identifying such a risk and then assessing inherent risk below high. Notice that significant risks are based solely upon inherent risk. Align Inherent Risk with Significant Risk In other words, we consider the inherent risk factors, and we disregard internal controls as we identify these risks.

The audit standard defines the risk as one close to the upper end of the spectrum of inherent risk without regard for controls. The threat must be likely, and the result must be material. SAS 145, Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement, defines significant risk in terms of likelihood and magnitude. The number depends on the entity, its environment, the types of services it provides or goods it sells, the complexity of its accounts, the subjectivity of determining balances, the susceptibility of accounts to bias or fraud, and the level of change. How Many Significant Risks?ДЄt least one significant risk exists in most audits, and frequently there are more. But it's a significant risk because of its nature (subjective and complex), not because of our response (re-computing the estimate and comparing it with prior periods, for example). Yes, we will give it special audit consideration. ДЇor example, a highly complex receivable allowance is inherently risky because it's subjective and complicated. They've amended this definition in SAS 145 to focus on the inherent risk characteristics rather than the response. The Auditing Standards Board previously defined significant risks as those deserving special audit consideration.

Generally accepted auditing standards sas ssars