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Wiley Practitioner's Guide to GAAS 2013: Covering all SASs, SSAEs, SSARSs, and Interpretations by Joanne M. Flood

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PCAOB 12: Identifying and Assessing Risks of Material Misstatement1

EFFECTIVE DATE AND APPLICABILITY

Effective Date This standard currently is effective.
Applicability All audit planning.

DEFINITIONS OF TERMS

Fraud risk factors. Events or conditions that indicate an incentive or pressure to perpetrate fraud, an opportunity to carry out fraud, or an attitude or rationalization that justifies the fraudulent action. Fraud risk factors do not necessarily indicate the existence of fraud. However, they are frequently present where fraud exists.

OBJECTIVES OF PCAOB STANDARD 12

Public Company Accounting Oversight Board (PCAOB) Auditing Standard 12 sets the objective of identifying and appropriately assessing the risk of material misstatement, thereby providing a basis for designing and implementing responses to that risk.

FUNDAMENTAL REQUIREMENTS

Performing Risk Assessment Procedures

The auditor should perform sufficient risk assessment procedures to provide a reasonable basis for identifying and assessing the risks of material misstatement due to error or fraud, and to design further audit procedures.

There are a variety of sources from which the risk of material misstatement can arise, including both internal and external factors. These factors can affect the judgments involved in the determination of accounting estimates, or create pressure to manipulate the financial statements in order to achieve financial goals. This standard addresses the following risk assessment procedures: ...

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