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CA Intermediate · Auditing & Code of Ethics

Risk Assessment & Internal Control

Chapter 3 · 2 formulas · 4 exam-critical pointers

Core concepts

  1. 01SA 315 — Identify & assess Risks of Material Misstatement (RoMM).
  2. 02Components of internal control: Control Environment, Risk Assessment, Information System, Control Activities, Monitoring.
  3. 03Walkthrough tests confirm understanding of system; ToC tests operating effectiveness.
  4. 04Inherent risk × Control risk = RoMM; detection risk inversely proportional to RoMM.
  5. 05Auditor's response (SA 330): overall responses + further audit procedures (test of controls + substantive).

Flowchart

Internal Control Components (COSO) | Control Environment --- tone at top Risk Assessment ------- identify risks Control Activities ---- policies & procedures Info & Communication -- flow of info Monitoring ------------ ongoing + separate evals

Exam-critical pointers

  • ⭐Significant risks (SA 315): require special audit consideration (fraud, related party, non-routine).
  • ⭐ITGCs: change management, logical access, operations — pervasive to all CAATs.
  • ⭐Internal Financial Controls (IFC) audit mandatory for listed cos under Sec 143(3)(i).
  • ⭐Reliance on internal audit (SA 610) — assessed for objectivity, competence, systematic approach.

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