How do the risk assessments relate to the choice of audit approach?
Auditor has to identify and assess the risks of material misstatements, whether due to fraud or error, at the financial statements level and at the assertion level through understanding the entity, its environment and internal control system. Auditor shall identify and assess the risks and related controls by considering class of transactions, account balances and disclosures, and evaluate the pervasiveness of the risks. Auditor shall consider the likelihood of the misstatement, and whether it is of such magnitude to result in material misstatements.
The auditor designs the audit strategy or the overall audit approach after considering, inter alia, the evaluation of the risks. Depending upon the risks identified, the auditor may assign more experienced staff or even engage experts, emphasize the audit team to maintain professional skepticism, provide for more supervision, and apply additional audit procedures to obtain corroborating audit evidences.
So, all of that is done after identifying and assessing the risks, based on professional judgement.
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