While assessing the risks of material misstatement, auditors identify risks, relate risk to what could go wrong, consider the magnitude of risks, and:

A) Consider the complexity of the transactions involved.

B) Consider the likelihood that the risks could result in material misstatements.

C) Assess the risk of misstatements due to illegal acts.

D) Determine materiality levels.

Question

Izayah Herman

Business

28 March, 01:24

While assessing the risks of material misstatement, auditors identify risks, relate risk to what could go wrong, consider the magnitude of risks, and:

A) Consider the complexity of the transactions involved.

B) Consider the likelihood that the risks could result in material misstatements.

C) Assess the risk of misstatements due to illegal acts.

D) Determine materiality levels.

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Answers (1)

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Francesca Orozco · Answer 1

Consider the likelihood that the risks could result in material misstatements.

Explanation:

The risk of material misstatement is the risk that the financial statements of an organization have been misstated to a material degree. This risk is assessed by auditors at the following:

At the assertion level. This is further subdivided into inherent risk and control risk. Inherent risk is the susceptibility of an assertion to misstatement because of error or fraud, before considering controls. Control risk is the risk of misstatement that will not be prevented or detected by a reporting entity's internal controls.

At the financial statement level. Relates to the financial statements as a whole. This risk is more likely when there is a possibility of fraud.