ISA 315 (REDRAFTED) IDENTIFYING AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT
ISA 315 (redrafted) is a particularly important standard and is a companion standard to ISA 300 (redrafted). ISA 315 is concerned with the auditor gaining an understanding of the entity and the environment in which it operates to identify and assess the risk of material misstatement within the financial statements together with assessing the entity’s internal control environment. Its primary objective is to ensure that the auditor identifies and assesses the risk of material misstatement, whether due to fraud or error, at both the financial statement and assertion level. When the auditor has sufficient understanding of the entity and the environment in which it operates, the auditor then has a basis for designing and implementing audit procedures to respond to the assessed risks of material misstatement.
The auditor must undertake risk assessment procedures which involve inquiries of management and others in the entity, analytical procedures and additional procedures such as observance and inspection [ISA315.6(a)]. It is important to understand that risk assessment procedures alone do not provide sufficient appropriate audit evidence on which to base the auditor’s opinion.
The auditor shall also consider whether it is appropriate to undertake additional procedures relative to the circumstances. For example, if the audit client ...