AASB Response – Identifying and Assessing the Risks of Material Misstatement

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Nov 02, 2018

On November 2, 2018, the Auditing and Assurance Standards Board (AASB) submitted a comment letter responding to the IAASB’s Exposure Draft, Proposed International Standard on Auditing 315 (Revised), Identifying and Assessing the Risks of Material Misstatement.

Overall, the AASB agrees that the proposed changes are an improvement over the extant ISA, and that the changes bring clarity to many issues, such as how the understanding of the entity, its applicable financial reporting framework, and the system of internal control drive consideration of the risks of material misstatement.

They believe, however, that for ED-315 to promote a more consistent process for the identification and assessment of the risks of material misstatement, further improvements are needed. The results of field testing showed that many Canadian practitioners had significantly different interpretations of certain aspects of the proposals. In particular, they are concerned about the following:

  • Understanding versus evaluating the design of components of internal control
  • Controls relevant to the audit in accordance with paragraph 39(e)
  • Lack of clarity in the “information system and communication” component of internal control (paragraphs 35-36)
  • Significant risks and the reference to magnitude “AND” likelihood
  • Stand-back requirements

Review the AASB's response on the IAASB's website.

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