Audit risk assessment: changes on the horizon

3 September: The extensive revisions to ISA 315, effective for periods beginning on or after 15 December 2021, will have far-reaching effects for firms of all sizes, according to ICAEW’s Audit and Assurance Faculty.

Back in January, in our Viewpoints blog on ISA 315 (Revised), ICAEW’s Audit and Assurance Faculty noted major changes affecting risk identification, evaluation and auditor responses. Changes affect all audits and all firms, software, training and methodology providers will need to revise their approach to risk assessment.

On September 17, Phil Lenton, a Director in Deloitte's Audit and Assurance Practice and chair of ICAEW's ISA 315 Implementation Working Group will co-host a webinar with Jenny Reed, Global Audit Methodology Manager at Baker Tilly International, covering the changes that will impact audit practice the most. They will look at the practical implementation challenges facing firms and in particular the implications of changes to:

• the definition of 'significant' risks and the new 'inherent risk' factors; 
• relevant assertions and 'significant classes of account balances, transactions and disclosures’;
• the new stand-back.

"2022 audits may seem a long way away but there is a lot of planning and preparation to do during 2021", says Lenton.

The new 'inherent risk factors' include complexity, subjectivity, change, uncertainty and susceptibility to misstatement due to management bias or other fraud risk factors. Significant risks are to be defined as 'close to the upper end of’ a spectrum of inherent risk, determined by the 'likelihood’ of material misstatement, and the potential ‘magnitude’.

"This new definition of significant risks is a clear improvement on the current rather circular definition which refers to risks that warrant ‘special audit attention’" says Reed. "But firms need to think carefully about how they encourage consistency in the evaluation of significant risks because a lack of consistency was one of the main drivers for this change".

Future webinars will examine important changes to requirements relating to work on internal controls. To sign up for the ISA 315 webinar on September 17 please click here.