Understanding Audit Risk Assessment and Subsequent Events in Financial Statements

André Gonçalves de Freitas

Hatched by André Gonçalves de Freitas

May 09, 2024

3 min read

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Understanding Audit Risk Assessment and Subsequent Events in Financial Statements

Introduction:

In the world of auditing, risk assessment plays a crucial role in obtaining audit evidence regarding the design and implementation of relevant controls. This article aims to explore the concept of risk assessment and subsequent events in financial statements, as outlined in the Mesa de Estudos.

Risk Assessment Procedures:

According to the NBC TA 315 (R1) A75, risk assessment procedures involve various methods to gather audit evidence. These procedures include:

1. Inquiry with Entity Personnel:

One common method is making inquiries with the personnel of the entity. By engaging in conversations and discussions with key individuals, auditors can gain insights into the organization's control environment and identify potential risks.

2. Observation of Specific Controls:

Auditors may also observe the application of specific controls within the entity. This allows them to evaluate the effectiveness of these controls in mitigating risks and ensuring the integrity of financial reporting.

3. Inspection of Documents and Reports:

Inspecting relevant documents and reports is another crucial step in risk assessment. By carefully examining these materials, auditors can identify any discrepancies or irregularities in the organization's financial activities.

4. Tracing Transactions through Information Systems:

Lastly, auditors may track transactions through the relevant information systems. This enables them to assess the accuracy and completeness of financial data and identify any potential risks associated with the system's integrity.

Subsequent Events:

After understanding risk assessment procedures, it is important to discuss subsequent events. These events refer to occurrences that take place after the end of the reporting period but before the issuance of financial statements. One such example mentioned in the Mesa de Estudos involves the closure of an entity's activities in a specific state.

In the mentioned scenario, the entity's board of directors decided to cease operations in Minas Gerais on January 31, 2017. A restructuring plan was completed and communicated to employees, clients, and suppliers on March 31, 2017. The closure of activities occurred on May 31, 2017, and the assets located in Minas Gerais were put up for sale. On July 31, 2017, the entity's assets were sold to another entity in the same industry that was establishing itself in Minas Gerais. The proceeds from the sale were received on August 31, 2017.

According to the Pronouncement CPC 24, subsequent events include all events that occur until the date of authorization for the issuance of financial statements. Some of these events may require adjustments to the financial statements, while others may not.

Actionable Advice:

Based on the concepts discussed above, here are three actionable pieces of advice for auditors and financial professionals:

1. Prioritize thorough risk assessment procedures:

To ensure the accuracy and reliability of financial statements, auditors should prioritize comprehensive risk assessment procedures. By diligently conducting inquiries, observations, inspections, and transaction tracing, auditors can identify potential risks and strengthen the control environment.

2. Stay updated on subsequent events:

Financial professionals must stay updated on subsequent events that may have an impact on the organization's financial statements. By closely monitoring these events, they can assess the need for adjustments and ensure the financial statements accurately reflect the entity's financial position.

3. Document all findings and evaluations:

Throughout the audit process, it is crucial to maintain detailed documentation of all findings, evaluations, and assessments. This documentation serves as evidence of due diligence and supports the audit opinion. It also helps in future audits and provides a clear trail of the audit process.

Conclusion:

In conclusion, understanding risk assessment procedures and subsequent events is essential for auditors and financial professionals. By employing suitable risk assessment procedures, conducting thorough evaluations, and staying updated on subsequent events, auditors can provide reliable assurance on the financial statements. Furthermore, documentation of all findings and evaluations enhances transparency and accountability in the audit process. With these practices in place, organizations can ensure the integrity and accuracy of their financial reporting.

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