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CMA Intermediate · Corporate Accounting and Auditing · Audit Risk, Internal Control, Internal Check and Internal Audit

As per SA 315, whether the entity's risk assessment process is appropriate to the circumstances is:

It is a matter of judgment. SA 315 explains that the risk assessment process is the basis for how management determines risks to be managed, and its appropriateness depends on the circumstances, including the nature, size and complexity of the entity. No fixed turnover test applies.

  1. AA matter of judgment, considering the nature, size and complexity of the entityCorrect
  2. BDetermined solely by the entity's turnover
  3. CDecided by the audit committee and not by the auditor
  4. DA matter that must be tested by detailed substantive procedures on every balance

Explanation

SA 315 says the risk assessment process forms the basis for how management determines the risks to be managed. If it is appropriate to the circumstances, including the nature, size and complexity of the entity, it helps the auditor identify risks of material misstatement. Whether it is appropriate is a matter of judgment.

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