Identifying and Assessing the Risks of Material Misstatement [Completed]

Effective date:

The revisions to CSA 315 are ef­fec­tive for au­dits of financial statements for pe­ri­ods be­gin­ning on or af­ter De­cem­ber 15, 2021. Earlier application is permitted.

Included in the CPA Canada Handbook – Assurance:

May 2020

Last up­dated:

May 2020


ISA 315 (Re­vised) deals with the au­di­tor’s re­spon­si­bil­ity to iden­tify and as­sess the risks of ma­te­r­ial mis­state­ment in the fi­nan­cial state­ments, through un­der­stand­ing the en­tity and its en­vi­ron­ment, in­clud­ing the en­tity’s in­ter­nal con­trol.

In July 2018, the IAASB is­sued for pub­lic com­ment an Ex­po­sure Draft of pro­posed re­vi­sions to ISA 315 (Re­vised), Iden­ti­fy­ing and As­sess­ing the Risks of Ma­te­r­ial Mis­state­ment, in or­der to ad­vance au­dit qual­ity. The IAASB is propos­ing more ro­bust re­quire­ments and im­proved guid­ance to: (i) drive con­sis­tent and ef­fec­tive iden­ti­fi­ca­tion and as­sess­ment of risks of ma­te­r­ial mis­state­ment; (ii) mod­ern­ize ISA 315 to meet evolv­ing busi­ness needs, in­clud­ing in­for­ma­tion tech­nol­ogy, and how au­di­tors use au­to­mated tools and tech­niques, in­clud­ing data an­a­lyt­ics, to per­form au­dit pro­ce­dures; (iii) im­prove the stan­dard’s ap­plic­a­bil­ity to en­ti­ties across a wide spec­trum of cir­cum­stances and com­plex­i­ties; and (iv) fo­cus au­di­tors on ex­er­cis­ing pro­fes­sional skep­ti­cism through­out the risk iden­ti­fi­ca­tion and as­sess­ment process.

In December 2019, the IAASB finalized and issued its revisions to ISA 315. Subsequently, the AASB approved the corresponding changes to CSA 315 and issued these revisions to the CPA Canada Handbook – Assurance in May 2020.

The revisions to CAS 315: (i) distinguish the nature and extent of work needed for indirect and direct controls in the system of internal control; (ii) clarify which controls need to be identified for evaluating the design of a control, and determining whether the control has been implemented; (iii) highlight scalability of the standard by keeping the principles-based requirements focused on what needs to be done, and using separate headings in the application material to illustrate scaling up for more complex situations and scaling down for less complex situations; (iv) clarify the definition of "significant risk" and explicitly introduce the concept of spectrum of inherent risk to assist the auditor in making a judgment, based on the likelihood and magnitude of a possible misstatement, on a range from higher to lower, when assessing risks of material misstatement; (v) introduce the concept of inherent risk factors, including complexity, subjectivity, change, uncertainty or susceptibility to misstatement due to management bias or other fraud risk factors insofar as they affect inherent risk; (vi) introduce the concepts of "significant classes of transactions, account balances and disclosures" and relevant assertions" to assist with the identification and assessment of the risk of material misstatement; (vii) separate the assessment of inherent and control risk; (viii) enhance the auditor's considerations in relation to the entity's use of information technology and how it affects the audit, and include considerations for using automated tools and techniques in the application material; (ix) introduce a requirement to "stand back" to evaluate the completeness of the significant classes of transactions, account balances and disclosures at the end of the risk assessment process; (x) use more explicit language and enhance requirements and application material to reinforce the importance of exercising professional skepticism when performing risk assessment procedures; and (xi) clarify the threshold for identifying possible risks of material misstatement in CAS 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards.

Revised CAS 315 is effective for audits of financial statements for periods beginning on or after December 15, 2021. Earlier application is permitted.

As a result of issuing revised CAS 315, requirements in the following standards have been amended to articulate more clearly the auditor's responsibilities regarding identifying and assessing the risks of material misstatement:

  • CAS 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements, paragraphs 17, 21, 28 and 45;
  • CAS 330, The Auditor's Responses to Assessed Risks, paragraphs 7-8, 10, 13-17 and 27;
  • CAS 402, Audit Considerations Relating to an Entity Using a Service Organization, paragraphs 10-12 and 14; and
  • CAS 540, Auditing Accounting Estimates and Related Disclosures, paragraphs 13, 16-17 and 19.



Other developments

May 2020

On May 4, 2020, the AASB released the Basis for Conclusions, which summarizes the process the AASB followed in revising CAS 315, Identifying and Assessing the Risks of Material Misstatement.

On May 1, 2020, the AASB issued to revisions to CSA 315 to the CPA Canada Handbook – Assurance.

December 2019

On December 19, 2019, the IAASB released International Standard on Auditing (ISA) 315 (Revised 2019), its revised standard for identifying and assessing risks of material misstatement.

July 2019

In July 2019, the AASB staff updated this project to note that the Board expects to finalize the Handbook material in Q1/2020.

January 2019

On January 31, 2019, the AASB issued a supplement to the September 2018 Exposure Draft, “Identifying and Assessing the Risks of Material Misstatement” (ED-CAS 315), to explain and illustrate the proposed conforming amendments to revised CAS 540, and paragraph A42 of CAS 200, arising from ED-CAS 315. Comments are requested by May 1, 2019.

September 2018

On September 6, 2018, the AASB issued an Exposure Draft proposing the adoption of ISA 315 (Revised), with appropriate Canadian amendments, if any. Stakeholders are invited to comment until November 2, 2018.

July 2018

On July 16, 2018, the IAASB issued for public comment an Exposure Draft of proposed revisions to ISA 315 (Revised).  Comments are requested by November 2, 2018.

June 2018

In June 2018, the AASB staff updated this project to indicate that the AASB expects to issue an exposure draft in Q4/2018.

November 2017

In November 2017, the AASB staff updated this project to indicate that the AASB expects to issue an Exposure Draft for comment in Q3/2018.

October 2016

In October 2016, the AASB staff updated this project to advise that the AASB expects to issue an Exposure Draft in respect of this project in Q1/2018.

July 2016

On July 21, 2016, CPA Canada issued an article written by Eric Turner, Director, Auditing and Assurance Standards of CPA Canada, alerting readers to the fact that the IAASB is currently reviewing ISA 315 and the audit risk model with a view to making a number of improvements.


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