Question

An auditor will identify accounts and related assertions at risk of material misstatement?

1) after testing internal controls
2) after writing the audit report
3) to plan the audit to focus on those accounts
4) to eliminate audit risk

Answer 1

An auditor identifies accounts and related assertions at risk of material misstatement early in the audit process to plan the audit effectively. This step helps manage audit risk and determine audit procedures, not to eliminate it entirely or as a result of testing internal controls.

Step-by-step explanation:

An auditor will identify accounts and related assertions at risk of material misstatement to plan the audit to focus on those accounts. This important step in the audit process is performed early on, as it helps the auditor determine the nature, timing, and extent of audit procedures.

By identifying these risks, the auditor can apply appropriate audit resources where they are most needed and can conduct an efficient and effective audit. The identification of these risks is not meant to eliminate audit risk, as some level of risk is always present, but rather to manage it to an acceptable level. It certainly takes place well before writing the audit report and is a foundational part of audit planning, as opposed to being a consequence of testing internal controls.