DISCUSSION QUESTIONS
The following are concepts discussed in Chapter 8 and this chapter:
1. Preliminary judgment about materiality
7. Estimated total misstatement in a segment
2. Control risk 8. Planned detection risk
3. Risk of fraud 9. Estimate of the combined misstatement
4. Inherent risk 10. Significant risk
5. Risk of material misstatements 11. Acceptable audit risk
6. Known misstatement 12. Performance materiality Requireda. Identify which items are audit planning decisions requiring professional judgment.
b. Identify which items are audit conclusions resulting from application of audit procedures and requiring professional judgment.
c. Under what circumstances is it acceptable to change those items in part a. after the audit is started? Which items can be changed after the audit is 95 percent completed?
This problem requires you to access PCAOB Auditing Standard AS 2110, Identifying and Assessing Risks of Material Misstatements (pcaobus.org). Use this standard to answer each of the questions below. For each answer, document the paragraph(s) in AS 2110 supporting your answer.
a. What types of information does AS 2110 suggest the auditor should consider when obtaining an understanding of the company and its environment?
b. What types of performance measurements might affect the risk of material misstatement?
c. What specific issues should be included in the discussion among engagement team members regarding the risk of material misstatement?
d. What factors should the auditor consider in determining whether a risk is a “significant risk”?
e. What guidance is provided about revising risk assessments as the audit continues?
