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CS Professional · Compliance Management, Audit and Due Diligence · Audit Principles and Techniques

A junior at Himalaya Cements Ltd's audit firm asks whether the auditor must always state inherent risk and control risk separately in the working papers. Under SA 200, which is correct?

The auditor may make separate or combined assessments of inherent and control risk depending on preferred methodology and practical considerations, expressed in quantitative or non-quantitative terms. Making appropriate risk assessments matters more than the approach used.

  1. AYes, separate assessments are mandatory in every audit
  2. BNo, the auditor may make separate or combined assessments depending on preferred techniques and practical considerations, and the assessment may be quantitative or non-quantitativeCorrect
  3. CNo, because risks of material misstatement need not be assessed if detection risk is low
  4. DYes, but only expressed as percentages

Explanation

SA 200 refers ordinarily to a combined assessment of the risks of material misstatement, but permits separate or combined assessments, in quantitative or non-quantitative terms. What matters more is that appropriate risk assessments are made.

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