Material Misstatement Question Answer 2022

Question 1
Refer Excel sheet
International Standard on Auditing 315 ‘’Identifying and Assessing the Risks of
Material Misstatement through understanding the Entity and its
Environment’’ ,the main objective of this particular standard is to identify the risk
involved in the financial statement of the entity may be due to fraud and error
or due to the entity internal control itself. Based on the analytical procedure risk
at the financial statement level may be due to weak internal control and because
of related. (IDENTIFYING AND ASSESSING THE RISKS OF MATERIAL
MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS
ENVIRONMENT , 2019)
Question 2(a)
Since ISA 315 and based on and the analytical procedure performed the
significant and major risk which are involved at the financial statement level are
outlined here in below:
1. In this the risk may be due to inherent risk and control risk. Material
misstatement in the financials can occur due to error or fraud other is the
control risk in which the misstatement occur because of the weak internal
control of the management of the company .This risk cannot be control
nor prevented. (accounting tools.com, 2019)
2. If there is a risk at the financial statement level than the fraud possibility
is very much high and to detect that risk at the audit level is very low. It
also increases the evidence to be obtained from substantive procedure
which reduce the audit risk.
Question 2(b)
Based on ISA 315 and on the basis of and the analytical procedure performed the
significant and major risk which are account specific and are available at specific
account level are outlined here in below:
1. Company TNO Limited non-current investment are valued on the basis of
directors’ valuation i.e. on the basis of estimates made by the
management of the company. For the financial year 2013 and for the half
year ended 30.06.2014 the valuation is made on the basis of director
valuation. According to International Standard on Auditing the valuation
should be done on the basis of fair value rather than on the basis of
director valuation.
2. Company TNO Limited Property Plant and Equipment i.e. freehold land is
valued on the basis of director estimate and assumption rather it should
be valued at cost to the company .Building on freehold land is also valued
on basis of director valuation rather it should be done on the basis of fair
valuation.