Question

The risk assessment phase of an audit does not include?

1) gaining an understanding of the client
2) audit execution and reporting
3) identification of factors that may affect the risk of a material misstatement in the financial statements
4) development of an audit strategy and a risk and materiality assessment

Answer 1

The risk assessment phase of an audit does not include audit execution and reporting, which are subsequent phases involving testing financial statements and providing an audit opinion.

Step-by-step explanation:

The risk assessment phase of an audit includes several steps that are essential in planning the audit and determining the scope of audit procedures. Among the options given, audit execution and reporting does not fall within the risk assessment phase of an audit. This phase is typically characterized by:

1. Gaining an understanding of the client and its industry,
2. Identification of factors that may affect the risk of a material misstatement in the financial statements,
3. Development of an audit strategy and a risk and materiality assessment.

The audit execution and reporting are sequential phases that occur after the risk assessment phase and involve the actual testing of the financial statement areas identified as risky as well as the delivery of the audit opinion.