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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Planning, materiality and assessing the risk of material misstatement

Zenith Retail plc sells consumer electronics. The audit senior is planning risk assessment procedures and proposes only to make enquiries of the finance director about the entity's industry and performance. The audit manager objects. Under ISA 315 (Revised 2019), what is the correct position?

Risk assessment procedures must comprise enquiries of management and others, analytical procedures, and observation and inspection. Enquiries of the finance director alone are insufficient regardless of seniority, and the procedures are required in every audit, not only the first year.

  1. AEnquiries of management alone are sufficient if the finance director is senior and experienced
  2. BRisk assessment procedures must include enquiries, analytical procedures and observation and inspection; enquiry alone is not sufficientCorrect
  3. CRisk assessment procedures are only required in the first year of an audit
  4. DRisk assessment procedures are replaced by tests of controls where controls are strong

Explanation

ISA 315 requires risk assessment procedures to include enquiries of management and others, analytical procedures, and observation and inspection. Enquiry alone does not provide sufficient basis for identifying and assessing risks of material misstatement. They are required in every audit and are not replaced by tests of controls.

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