Audit

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ankit saini

Student CA IPC / IPCC

24 Points Joined September 2012

can anybody explain me the difference between risk at assertion level nd financial level...?

Replies (2)

deepali agarwal

Company Secretary

1289 Points Joined September 2010

Auditors use assertions when assessing risk by determining the different types of

misstatements that could occur, and developing audit procedures that are appropriate in

the circumstances . Assertions are categorised into classes of

transactions, account balances, and presentation and disclosure. Findings from COSO

(2010) indicate that over sixty percent of the frauds examined from 1998 to 2007 related

to revenue fraud.

Prior research suggests that the probability of perpetrating financial statement fraud is related to a concentration of executive power. As the concentration of power of top management increases, the ability to override controls is enhanced and we would expect that the likelihood of top management to

perpetrate financial statement fraud through the use of fictitious transactions increases.

We specifically examine whether the probability of the violation of the occurrence

assertion is positively associated with a higher concentration of management power.

. Five assertions about transactions and events are examined in this study:

occurrence, transactions and events that have been recorded, have occurred, and pertain

to the entity; completeness, all transactions and events that should have been recorded

have been recorded; accuracy, amounts and other data relating to recorded transactions

and events have been recorded appropriately; cutoff, transactions and events have been

recorded in the correct accounting period; and classification, transactions and events have

been recorded in the proper accounts. We initially examine the frequency of the violation

of these assertions

ANJALI NEGI

Chartered Accountant

1263 Points Joined August 2011

1. assertion level risk of material misstatement is when, particular account balance, transaction, D&P may contain material misstatement in the assertion (exe, they may not complete, cut-off error may occur).

2. FS level is when the incidence of error is so high, fo example pilferage of inventory regularly throughout the year, that inventory figure might be completely misstated in relation to the whole FS. so when auditor performs risk assessment procedures (say analytical procedures), and identifies that inventory has been decreased by 80%, while sales remained the same he will question this unusual relationship and so determins that area as risky within the whole FS. This means that expectable error on the assertion level will also be high, so he should test thorough substantive tests at this level (biger sample size, extensive tests of details etc.).