Risk of material misstatement at the assertion level:

Question

BlackTom AI · Accepted Answer

The prompt presents a question about risk of material misstatement at the assertion level.

Because no answer options are provided, I will begin by explaining the concept and then acknowledge the missing options.

Key idea: In an audit, the risk of material misstatement at the assertion level influences how an auditor plans and performs procedures. Specifically, the higher the risk at the assertion level, the more extensive and targeted the audit procedures tend to be. This includes deciding on the nature (what procedures to perform), timing (when to perform them), and extent (how much testing or sample size) of the audit procedures.

Given that the provided answer suggests: 'determines the nature, timing, and extent of further audit procedures.' this statement aligns with the standard view that assertion-level risk assessment informs subsequent audit work.

Now, in the absence of answer options, consider why this statement is plausible: 
- It captures the causal relationship between assessed risk and audit response. 
- It reflects the process by which auditors design procedures to address identified risks at the assertion level. 
- It contrasts with statements that might limit risk assessment to only one dimension (e.g., only timing or only nature) or that imply risk assessment has no bearing on procedures.

Why the other potential options (if they existed) would be considered incorrect: 
- If an option claimed that risk at the assertion level determines only the nature of procedures, it would be incomplete because timing and extent are also essential responses. 
- If an option claimed there is no link between assertion-level risk and audit procedures, it would contradict auditing standards that require a risk-based approach. 
- If an option suggested that only certain assertions from specific classes of transactions are affected, it would be too narrow, since assertion-level risk applies across relevant assertions for financial statements.

In summary, the statement provided as the answer correctly reflects the audit principle that the assessed risk of material misstatement at the assertion level drives the planning of the nature, timing, and extent of further audit procedures.

Fall 2025.ACCT.5640.01 Midterm Part A Fall 25 Auditing- Requires Respondus LockDown Browser

Risk of material misstatement at the assertion level:

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