Assessing Risk of Material Misstatement

Read time: ~5 minutes

AR = IR × CR × DR
Auditor assesses IR and CR; controls DR via nature/timing/extent of procedures
Higher IR/CR → auditor must accept lower DR → more extensive, more reliable, more year-end testing
Risk assessed at the assertion level, not just financial-statement level
Key assertions: existence/occurrence, completeness, accuracy/valuation, rights & obligations, presentation & disclosure, cutoff