What is Risk of material misstatement?
In short
The risk of material misstatement is the risk that the financial statements are materially misstated before the audit. At the assertion level it combines inherent risk and control risk.
Key takeaways
- It is assessed at both the financial statement level and the assertion level.
- American Institute of Certified Public Accountants standards require inherent and control risk to be assessed separately.
- The higher the assessed risk, the lower the acceptable detection risk and the more persuasive the evidence needed.
Where it's tested
AUD: Assessing Risk of Material Misstatement — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
The risk of material misstatement at the assertion level consists of: