Identify and assess the risk of material misstatement at both levels
General requirements. Identification requirements.
The certified public accountant should use the information obtained to determine whether a risk factor is widely related to the financial statements as a whole and may affect multiple determinations, and then identify whether the risk is a risk of material misstatement at the financial statement level or not widely related to the financial statements as a whole, and then identify the risk as a material misstatement risk at the identification level.
Evaluate the requirements. Since the risk of material misstatement is the result of the combined effect of inherent risks and control risks, CPAs should consider the impact of relevant controls when assessing the risk of material misstatement, i.e., control risks.
Identify and assess the risk of material misstatement at the financial statement level.
A risk factor is widely related to the financial statements as a whole and may affect multiple determinations, and the certified public accountant should identify it as a risk of material misstatement at the financial statement level.
Conducting business in economically unstable countries and regions, liquidity problems with assets, loss of important customers, limited financing capacity, etc., may lead CPAs to have significant doubts about the auditee's ability to continue as a going concern.
Identify and assess the risk of material misstatement at the identified level.
An inherent risk factor may cause material misstatement in a certain determination, but it is not widely related to the financial statements as a whole, and the certified public accountant should identify it as a material misstatement risk at the recognition level.
CPAs should identify and determine whether a determination is a relevant determination based on its inherent risks, regardless of the impact of the relevant controls. After the CPA has identified the relevant determination, it should only consider the impact of the relevant control when assessing the risk of material misstatement at the level of the determination.
For the identified risk of material misstatement at the identification level, the certified public accountant shall separately assess the inherent risk and the control risk.
The CPA should determine whether the assessed risk of material misstatement is an exceptional risk.