Question

In performing your firm's internal inspection, you find that the risk assessment on one of the audits subject to review addresses some, but not all, of the client's specific risks of material misstatement. The audit engagement team

a. May forego taking any action as long as sufficient substantive procedures were performed.

b. May defer taking any action and perform the omitted procedures on the subsequent year's audit

c. May defer taking any action and perform the omitted procedures on the subsequent year's audit, but only if sufficient substantive procedures were performed.

d. Should perform the omitted procedures.

Answer 1

The audit engagement team should perform the omitted risk assessment procedures as soon as they are identified, rather than deferring them or relying solely on substantive procedures.

Step-by-step explanation:

When it comes to identifying and addressing risks of material misstatement in an audit, the audit engagement team must ensure that the risk assessment is thorough and complete. If a risk is identified after the initial risk assessment, the correct action is not to postpone addressing it; instead, the audit team should perform the omitted procedures as soon as the oversight is identified.

The option of deferring the procedures to the subsequent year's audit or relying solely on substantive procedures is not in accordance with generally accepted auditing standards, which require that risks be appropriately assessed and addressed within the same period they are discovered.