Video: Risk of Material MIsstatement

This lesson delves into the concept of risk of material misstatement, discussing how an auditor's understanding of the control environment impacts the assessment of risks at the financial statement level. The lesson covers the importance of evaluating the control risk and mentions how an effective control environment may allow the auditor to perform audit procedures at an interim date or make other modifications in their audit approach. Additionally, the lesson introduces substantive and combined testing approaches, outlining the differences between them. The combined approach refers to testing both internal controls and substantive procedures, while substantive approach focuses solely on testing account balances. These approaches are used by auditors to maintain the audit risk formula and adapt their strategies accordingly.