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MindMap Gallery Chapter 6 Risk Assessment

Chapter 6 Risk Assessment

Including the third section to understand the audited unit and its environment, etc., and the fourth section to understand the various elements of the audited unit's internal control system and other detailed knowledge points. This mind map will help you familiarize yourself with the key points of knowledge and enhance your memory. Students in need can save it.

Edited at 2024-12-05 20:51:57

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Chapter 6 Risk Assessment

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Chapter 6 Risk Assessment

Section 3 Understand the audited unit and its environment

1. Overall requirements

Organizational structure, ownership and governance structure, business model (Including the extent to which the business model utilizes information technology)

internal factors

Industry situation, legal environment, regulatory environment, and other external factors

external factors

Measures of financial performance, including those used internally and externally

internal and external factors

Applicable financial reporting basis, accounting policies and reasons for changes in accounting policies

internal factors

Elements of the internal control system of the audited unit

internal factors

2. Organizational structure, ownership and governance structure, business model

1. The impact of operating risks on the risk of material misstatement

(1) Operating risks are broader than the risks of material misstatement of financial statements, and CPAs are not responsible for understanding and identifying all operating risks.

(2) Most operating risks will eventually have financial consequences, thereby affecting financial statements, but not all experience risks lead to material misstatement risks. CPAs have no responsibility to identify or evaluate operating risks that do not have a significant impact on financial statements.

3. Applicable financial report preparation basis, accounting policies and reasons for changing accounting policies

1. Things to consider when understanding

(1) The audited entity’s financial reporting practices related to the applicable financial reporting preparation basis

(2) Obtain understanding of the selection and application of accounting policies by the audited unit

2. Understand how inherent risk factors affect the likelihood that a determination is prone to misstatement.

(1) Understanding how inherent risk factors affect the likelihood of a determination being prone to material misstatement can help the CPA initially understand the possibility and severity of the misstatement, and help the CPA identify the risk of material misstatement at the determination level in accordance with the provisions of the auditing standards.

Section 4 Understand the various elements of the internal control system of the audited unit

1. Concepts and elements of internal control

1. Internal control system and its elements

Internal control system refers to a system designed, implemented and maintained by governance, management and other personnel to reasonably ensure that the audited unit can achieve the reliability of financial reports, improve operating efficiency and effectiveness, and comply with applicable laws and regulations, etc. Target.

The system contains the following five interrelated elements (based on the internal control framework issued by COSO)

(1) Internal environment

(2) Risk assessment

(3) Information and communication (information system and communication)

(4) Control activities

(5) Internal supervision

2. Internal environment related to the preparation of financial statements

(1) Meaning: The internal environment includes governance functions and management functions, as well as the attitudes, understanding and actions of governance and management towards the internal control system and its importance. A good internal environment is the basis for effective internal control. In fact, during the audit business undertaking stage, CPA needs to make a preliminary understanding and evaluation of the internal environment.

(2) Content

Communicate and implement the values of integrity and integrity

Attention to Competencies

Governance level of involvement

Management philosophy and operating style

Assignment of authority and responsibility

Human Resources Policies and Practices

3. Understand the nature and extent of internal control

(1) Understand the internal control procedures

Ask the personnel of the audited unit

Observe the use of specific controls

Check documents and reports

Tracking transactions as they progress through the financial reporting information system (i.e., walk-through testing)

(2) Objectives for performing walk-through testing and available audit evidence

Confirm understanding of business processes

Confirm that the understanding of the relevant transactions is complete, that is, all possible misstatements relevant to the assertion have been identified

Confirm the accuracy of information obtained regarding preventive and inspection controls in the process

Evaluate the effectiveness of control designs

Verify that controls are implemented

Confirm the accuracy of previously made written records

2. Classification of internal controls

1. Direct control and indirect control

For the purpose and needs of the financial statement audit, the CPA should only understand the controls related to the audit. The controls related to the audit are divided into direct controls and indirect controls according to the way they play a role in preventing, detecting or correcting misstatements at the assertion level.

direct control

Refers to internal controls that are sufficiently accurate to prevent, detect, or correct misstatements at the assertion level.

(1) The control in the information system and communication and control activity elements is mainly direct control.

(2) CPA’s understanding and evaluation of these factors are more likely to affect its identification and assessment of the risk of material misstatement at the identification level

indirect control

Internal controls that are insufficient to prevent, detect, or correct misstatements at the assertion level

(1) Controls in internal environment, risk assessment and internal supervision are mainly indirect controls and are also the basis of the internal control system of the audited unit.

(2) The CPA's understanding and evaluation of these factors are more likely to affect its identification and assessment of the risk of material misstatement at the measurement level of financial statements, and may also affect the identification and assessment of the risk of material misstatement at the determination level.