Significant risks = risks that are so important that they need special attention in the audit.
Usually:
- Involve unusual or complex transactions,
- High risk of fraud,
- Subjective estimates with high uncertainty.
Examples:
- Revenue recognition with complicated contracts.
- Large related party transactions.
- Complex financial instruments.
For each significant risk, auditor must:
- Understand relevant controls.
- Design stronger, more focused audit procedures.
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