Technical Gathering on Friday (Identifying and Assessment of Risk of Material Misstatements (ISA 315))

Last Friday (04/08), KAP Agus Ubaidillah dan Rekan (TGS AU Partners) carried out Technical Gathering on Friday (TGIF) activities for the 18th (eighteen) time. The implementation of TGIF is routinely held every week as a learning media for all employees of KAP Agus Ubaidillah dan Rekan.

The TGIF material on the first week of August 2023 was presented by Mr. Mikail Jaman, Ak., M.Ak., CA., CPA., CPI as a managing partner of KAP Agus Ubaidillah dan Rekan (TGS AU Partners). The presentation material presented by him was about Identifying and Assessment of Risk Material Misstatement (ISA 315).

Purpose and Importance of Learning About Assessment of Risk Material Misstatement (ISA 315)

The purpose of studying ISA 315 is to assist auditors in identifying the risks of material misstatement that can occur in an entity's financial statements.

Here are some reasons why ISA 35 (Material Misstatement Risk Assessment) material is important to learn:

1. Reduce Audit Risk

2. Ensure the Quality of Financial Statements

3. Design an Effective Audit Strategy

4. Enhance Professionalism

5. Understanding of the Business Environment

6. Stakeholder Trust

7. Prevent or Detect Fraud

Identifying and Assessment of Risk Material Misstatement (ISA 315)

Identification and Assessment of Risk Material Misstatements (RMM) is the initial stage in the audit process, where auditors identify and evaluate the risk that an entity's financial statements contain material errors. RMM is the term used to describe the risk that material errors are not detected by internal controls or audit procedures. This process involves the following steps:

1. Risk Identification:

• Entity Risk: The auditor understands the entity's business and operating environment. This includes an understanding of the industry, markets, regulations, and external factors that may affect the entity's business and financial statements.

• Understanding of Internal Controls: The auditor analyzes the entity's internal controls to understand how the entity manages the risk of material error. This includes an understanding of business processes, policies, procedures, and systems in place.

• Identification of Potential Material Errors: The auditor identifies areas of potential risk of material error. This can include critical accounts, large transactions, and more complex areas.

2. Risk Assessment:

• Likelihood and Impact: The auditor evaluates the likelihood of a material error occurring (possibility) and the impact on the financial statements (impact). Impact can be financial, reputational, legal, and other.

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• Risk of Material Error at Account Level: The auditor evaluates the risk of material error at the individual account level, such as assets, liabilities, revenues, and expenses. This helps in determining how audit actions should be directed.

3. Response to RMM:

• Substantive Testing: If the risk of material error is identified as high, the auditor will plan and execute more intensive substantive testing on those areas.

• Substantive Control Testing: If the risk of material error is low, the auditor may perform substantive control testing to confirm the effectiveness of internal controls.

Conclusion

It is important to remember that the RMM Identification and Assessment process is a very important starting point in an audit. Having a good understanding of the entity's business, internal controls, and areas prone to material error helps auditors design an effective audit plan and ensure that the audit is performed thoroughly and accurately.

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