Which risk assessment procedures are used to obtain an understanding of the entity and its environment, including its internal control?

Risk assessment procedures are performed to obtain an understanding of the entity and its environment, including its internal control, to identify and assess the risks of material misstatement. Auditing standards mandate a combination of procedures to achieve this understanding. These core procedures include: (1) inquiries of management, internal audit, and others; (2) analytical procedures to identify unusual amounts, ratios, or trends; and (3) observation of processes and inspection of documents. Using these procedures in combination provides the auditor with a comprehensive basis for identifying risks and planning the audit.

A. Inquiries of management: This is a required risk assessment procedure, but it is not the only one. Relying solely on inquiries is insufficient for a thorough understanding.

B. Analytical procedures: This is a required risk assessment procedure, but it is incomplete on its own and must be supplemented by other procedures.

C. Observation: This is a required risk assessment procedure, but it provides evidence only at a point in time and must be used with other methods.

1. International Auditing and Assurance Standards Board (IAASB). (2019). International Standard on Auditing (ISA) 315 (Revised 2019)

Identifying and Assessing the Risks of Material Misstatement. Paragraph 13 states

"The risk assessment procedures shall include the following: (a) Inquiries of management... (b) Analytical procedures. (c) Observation and inspection."

2. Public Company Accounting Oversight Board (PCAOB). (2010). AS 2110: Identifying and Assessing Risks of Material Misstatement. Paragraph .07 states

"Risk assessment procedures include inquiries of management and others

analytical procedures

and observation and inspection."

3. Arens

A. A.

Elder

R. J.

Beasley

M. S.

& Hogan

C. E. (2020). Auditing and Assurance Services: An Integrated Approach (17th ed.). Pearson. Chapter 8

"Risk Assessment

" details that auditors use inquiries

analytical procedures

observation

and inspection as the primary types of risk assessment procedures. This textbook is standard courseware in university auditing programs.