Here is how KPMG described developing its audit strategy. Identification of Significant Risks

We design an overall audit strategy and an audit approach to address the significant financial reporting risks that by their nature require special audit consideration. By focusing on these risks, we establish an overall audit strategy and effectively target our audit procedures.

KPMG identified 12 significant reporting risks. In the table below, we compare KPMG's audit approaches for two different accounts which both have a low risk of material misstatement prior to the consideration of internal controls (or inherent risk):

1. Development charges are charges to developers for water, wastewater, and roads that the region provides to new residential and industrial developments.
2. Based upon what you have learned about audit strategy so far, why would KPMG apply a different strategy to two accounts that have the same risk of material misstatement?

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Risk of Material Misstatement Prior to Consideration of Internal Controls Accounts Summary of Planned Audit Approach Development Charges, Revenue and Expenses Low Substantive approach Substantive test development charge collections by vouch- ing to cash receipts and ensure proper classification Perform interest reasonability test Vouch development charge expenditures to supporting documents and ensure they relate to appropriate programs Perform analysis on certain budgeted projects . . . Accounts Payable, Accrued Liabilities and Expenses Low Control and substantive approach Evaluate the design and implementation of controls over payroll expenses Test the operating effectiveness of the controls Substantive test of details of nonpayroll expenses Search for unrecorded liabilities Examine accrued liabilities for accuracy and completeness .