Lesson: Risk Assessment During Planning

Instructor: Nick Palazzolo

This lesson covers the crucial aspects of risk assessment during the planning stage of an audit. Nick Palazzolo highlights the importance of considering the risk of management override of controls, involving key engagement members, and discussing the susceptibility of the entity's financial statements to material misstatements and fraud. The lesson dives into the need for the engagement team to identify specific engagement risks, discuss how these risks could affect the engagement, and determine whether they are acceptable. Additionally, the lesson emphasizes the importance of documenting these risks and the plans to mitigate them, providing a comprehensive understanding of risk assessment during audit planning.

Updated: June 22, 2023 Create an account

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Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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And these are the items that we are going to conduct in terms of risk assessment during planning. This does have some overlap, but this is clearly defined in what the auditor needs to check off, right? Any checklists in an audit or check off that we considered the risk of management override of controls. You want to consider the inclusion of all key engagement members, including the engagement partner. That's very important. We don't want the partner who's the one presumably signing the letter with the opinion to not be involved in the work that goes into getting that opinion ready. This could exclude the junior staff, and that's fine. A little sad for them, not getting invited. Hopefully they get invited to the pizza party, but can't guarantee that. The discussion of the susceptibility of the entity's financial statements to material misstatement and fraud. I've said it many times, I'll keep saying it. We want to assess both error and fraud equally. Yes, we're going to work a little bit harder to find fraud because fraud gets concealed, but both are equally damaging to the materiality of the financial statements. There can be zero fraud, but a lot of errors still just as serious as the fraud. The engagement team must identify the specific engagement risks that could occur. Is it possible that a bunch of these staff members will quit midway through the engagement? That's a risk. And why would that happen? I don't know. Maybe they're not getting paid well. That's a risk. I'm just throwing out risks. This is a whole brainstorming session in terms of the specific engagement. It could be a risk that the client just doesn't want to give a certain documentation, in which case, possibility for exclaiming opinion or withdrawing from

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Engagement Planning, Understanding an Entity, & Understanding its Internal Control

Module: 2 Concepts, 36 Lessons

Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Overview

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Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Objectives

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Introduction to Management's Representation and Responsibility

2:56

Reliance on Management Representations