1. There are three primary steps in the process of assessing overall risk. Describe the three steps. In your description provide details of how each step is documented. Also explain the next audit step and what effect the risk determination has on that step 2. Materiality is a fundamental concept to risk based auditing. Discuss planning and performance materiality. Clearly describe how each level of materiality is applied. Describe how the benchmark is selected for determining materiality. If total revenue is $63,000,000 and total assets is $26,000,000 and a medium tolerance for misstatement was determined to be appropriate. Use the table below to determine overall planning materiality (tolerable misstatement), performance materiality is determined to be 75% of planning materiality and trivial is set at $2,000. User's tolerance for misstatements Section Medium Low to High Low Medium to High Medium 2% 1.75% 1% 0.5% Revenue 1.5% 6% Profit Before Tax 10% 8% 7% 5% 1.75% 0.5% Total Assets 2% 1.5% 1% Net Assets/Equity 10% 8% 7% 6% 5% 10% 8% 7% 6% 5% Net Current Assets 3. Briefly define a significant deficiency and a material weakness. Explain if/when these would be reported to those charge with governance, under what SAS pronouncement the communication is reported and during what part of the audit the communication should be made. 1. There are three primary steps in the process of assessing overall risk. Describe the three steps. In your description provide details of how each step is documented. Also explain the next audit step and what effect the risk determination has on that step 2. Materiality is a fundamental concept to risk based auditing. Discuss planning and performance materiality. Clearly describe how each level of materiality is applied. Describe how the benchmark is selected for determining materiality. If total revenue is $63,000,000 and total assets is $26,000,000 and a medium tolerance for misstatement was determined to be appropriate. Use the table below to determine overall planning materiality (tolerable misstatement), performance materiality is determined to be 75% of planning materiality and trivial is set at $2,000. User's tolerance for misstatements Section Medium Low to High Low Medium to High Medium 2% 1.75% 1% 0.5% Revenue 1.5% 6% Profit Before Tax 10% 8% 7% 5% 1.75% 0.5% Total Assets 2% 1.5% 1% Net Assets/Equity 10% 8% 7% 6% 5% 10% 8% 7% 6% 5% Net Current Assets 3. Briefly define a significant deficiency and a material weakness. Explain if/when these would be reported to those charge with governance, under what SAS pronouncement the communication is reported and during what part of the audit the communication should be made
