Guide to Using International Standards on Auditing in - IFAC

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<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts
Use of Assertions
Assessing Risks
of Material
Misstatement
Designing Audit
Procedures
Procedures
The risk of material misstatement is a combination of inherent risk and control risk.
The assessment process includes:
• Inherent risk
Identify potential misstatements and the assertions involved, then assess the
likelihood of the risk’s occurrence and possible magnitude.
• Control risk
Identify and evaluate any relevant internal controls in place that mitigate the
assessed risks and address the underlying assertions.
The final step is <strong>to</strong> design audit procedures <strong>to</strong> be responsive <strong>to</strong> the assessed risks by
assertion. For example, if the risk is high that receivables are overstated (existence
assertion), the audit procedures should be designed <strong>to</strong> specifically address the
existence assertion. If sales completeness is a risk, the audi<strong>to</strong>r can design a test of
controls that addresses the completeness assertion.