Essay on ASA 315: Risk Assessment and Auditing Standards

This essay provides a comprehensive overview of Auditing Standard ASA 315, focusing on the identification and assessment of risks of material misstatement through understanding the entity and its environment. The essay begins with an introduction to the standard, emphasizing its role in ensuring accuracy and transparency in financial statements. The main body delves into the objectives of ASA 315, which include identifying risks, reviewing defined risks, determining their application to financial statements, and considering the risk of errors. The essay further explores the suitability of the standard, highlighting its application in large-scale production businesses and the requirements auditors must follow, such as conducting risk assessment procedures. The conclusion summarizes the key aspects of ASA 315, its objectives, and its limitations. The essay also acknowledges the standard's complexity and the need for detailed accounting knowledge for effective implementation.

Auditing and Assurance

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
There are ranges of accounting standard which are being applied by finance department
of companies to make accuracy and transparency in financial statement (Wang and Fargher,
2017). It depends on company that which forms of accounting standard they want to implement.
The project report is based on explanation of ASA 315 which is related to identifying risk o
material by entity and its environment. Under the report, this accounting standard is explained in
detailed manner including its critical analysis.
MAIN BODY
Summary on” ASA 315: Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment”
Auditing Standard ASA 315 sets up mandatory requirements and offers instructions on
how the company and its environment, such as internal controls, can be understood and the risk
of material mistakes in the financial audit report is assessed (Karakaş, Çiçekbilek, Tok and
Akduman, 2016). These audit standards discuss the auditor's role to define and evaluate, with an
appreciation of the company and the environment, particularly internal controls, the
consequences of a material error in the Financial Report. This accounting standard has been
operative for financial reporting time frame commencing on or before 1st of January 2010 (About
ASA 315, 2019).
Objective- The aim of the auditor is to recognize and assess, with knowledge of the organization
and its setting, including internal monitoring of the company, the risks of material error, be it
attributable to fraud or mistake, and to provide the basis for the design and execution of
responses to the risk of material errors. This auditing standard contributes in an effective manner
for companies to find out those issues which are recorded in financial statements of companies
which are related to material. It is being done by help of assessing organizational policies and its
strategies. Apart from it has below mentioned objectives which are as follows:

 Identify risks across the whole phase, through applicable risk-related measures and
through evaluating transaction types, account balance and financial statements reporting,
by recognizing the company and its environment.
 Review the defined risks and determine how they apply to the financial statements as a
whole more broadly and could impact other cases.
 Refer to what could be incorrect at the point of assertion and to the correct measures to be
reviewed by the auditor.
 Considering the risk of errors, and the likelihood of several errors, and the severity of the
likely mistakes that trigger material mistakes (About ASA 315, 2019).
 A constantly continually processing, reviewing, and review of knowledge during the
audit requires an awareness of the organization and its environment, and its internal
management (hereafter referred to as an "awareness of the business"). The arrangement
includes a process under which the auditor prepares the audit and allows a technical
evaluation during the audit. This all becomes possible on the basis of above mentioned
auditing standard ASA 315.
So these are the key objective of above mentioned accounting standard for which companies
apply it in their auditing process.
Suitability- This auditing standard is applied in those business entities which are involved in
large scale production. It is so because by help of this standard, they can find out obstacles in
recording of material volume and amount in their financial statements (Suitability of ASA 315,
2020). It cannot be applied in those businesses which are not involved in manufacturing sector.
As there will not be any requirement of material which lead to ineffective use of above
mentioned auditing standard.
Requirement- In order to apply ASA 315, auditors need to apply below mentioned process that
is as follows:
 In order to define and evaluate the dangers of substance misuse, the auditor should
conduct risk assessment exercises at the stages of the financial statements and of the
statement. Nevertheless, the risk management techniques themselves do not have
sufficient audit documentation on which the audit judgment may be focused.

 Risk assessment procedure includes following steps:
(a) Management inquiries, to the appropriate individuals within the internal audit
process, and of those within an organization that may have knowledge to better
determine the risks of the content in the view of the auditor.
(b) Complete observation
 When assessing the risks associated with a content misstatement, the auditor must
determine that the details received from the auditors' approval and continuance process.
 When the participant committing to the organization has made certain obligations, the
auditor should decide whether the knowledge gathered is appropriate for determining
risks of material error.
 If the auditor wishes to use knowledge from the past history of an auditor of the company
and from audit procedures conducted during past audits, the auditor should determine
whether adjustments that may impact its importance to the current audit after the
preceding audit have been carried out (About ASA 315, 2019).
So, these are the key requirements of ASA 315 that needs to be applied by auditor of companies
who want to implement this standard into evaluation of their financial statements.
CONCLUSION
On the basis of above discussion on ASA 315, this can be concluded that this accounting
standard has range of objectives and purpose for companies related to preventing material errors.
Though, it is important to know that this cannot be applied in those companies which are
involved in the manufacturing process or a company has small size. In addition, this accounting
standard includes too much requirements to apply in auditing process due to which it becomes
difficult for auditors to apply it an effective manner. As well as these requirements of auditing
standard makes it too much complex and hard to implement in an ease manner. It needs detailed
knowledge about key accounting concepts which is not possible for all auditors.

REFERENCES
Books and journal:
Wang, I.Z. and Fargher, N., 2017. The effects of tone at the top and coordination with external
auditors on internal auditors’ fraud risk assessments. Accounting & Finance, 57(4),
pp.1177-1202.
Karakaş, H.B., Çiçekbilek, İ., Tok, A., Alışkan, T. and Akduman, B., 2016. Comparison of
intraoperative and postoperative complications based on ASA risks in patients who
underwent percutaneous nephrolithotomy. Turkish journal of urology, 42(3), p.162.
Online:
About ASA 315, 2019 [Online] available through :<
https://www.auasb.gov.au/admin/file/content102/c3/ASA_315_Compiled_2015.pdf>
Suitability of ASA 315, 2020 [Online] available through :< https://prezi.com/6ull7ecajsos/asaisa-
315/>