Relevant factors in evaluation of inherent risk: by developing an overall audit plan data is required to assess the inherent risk and financial statement level and is then required to relate his assessment 2 material account balance and class of transactions . To assess inherent risk auditor would use professional judgement to evaluate numerous factors having regard to his experience of entity from previous auditor engagement of the entity et c . Normally an auditor evaluates inherent risk by assessing factors such as integrity of Management experience and knowledge of Management turnover of key management personnel now here what does turnover means….
is the flow of response to assess risk correct
initially apply RAP
then further audit procedure
then overall response to address ROMM at FS leve and ASSERTION level
then obtain more persuasive audit evidence
Management Turnover means how frequently employees at management level are leaving entity, getting replaced, if its frequent then entity will be unstable , anywhere misstatement can occur so it leads to financial statement level risk.
Collect Information & Obtain Understanding — Risk Assesement
What can go wrong ? And it which Level — Identifying & Assessing Risk
For Financial Statement Level Risk — Overall Response.
For Assertion Level Risk — Further Audit Procedures
Further Audit Procedures — Test of Controls & Substantive Procedures
Substantive procedures — Analytical Procedures + Test of Details