Explain the concepts of materiality and audit risk and the relationship between them?

(a) ISA 315 Identifying and assessing the risks of material misstatement requires the auditor to carry out risk assessment procedures to identify the possibility of material misstatement in the financial statements.

Required:

List three activities that the auditor can perform to help gain an understanding of the entity being audited and so identify the possibility of material misstatements.

(b) (i) Differentiate between the audit strategy and the audit plan. 

(ii) Explain the term ‘analytical procedures’ and outline the different types of analytical procedures available to the auditor indicating situations in the audit when they can be used.

(c) ISA 240 the Auditor’s responsibilities relating to Fraud in an audit of financial statements, describes the responsibilities of both management and the auditor with regard to preventing and detecting fraud.

Required:

i. Distinguish between fraud and error. 

ii. With an example each, distinguish between fraudulent financial reporting and misappropriation of assets. 

iii. Explain the responsibilities of both management and auditors with regard to the prevention and detection of fraud.

iv. State audit procedures that auditor may follow to assess fraud.