Risk of Material Misstatement

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The risk of material misstatement refers to the risk that the financial statements are materially misstated and do not present true and fair view. The risk of material misstatement is assessed at two levels (i) financial statements level and (ii) assertions level.

To go in depth of the risk of material misstatement, firstly you have to know what exactly the term material misstatement means from the accounting and auditing point of view. Material misstatement is related to the information present in the financial statement. Material misstatement leads the financial statement users suffering from the economical loss. Misstatement means the information suggested to be in there in financial statement is not actually what is written in there. The overall risk increases when such cases arise and thus increasing the risk of financial misstatement.

Risk in financial misstatement leads to change all the other risks i.e. the audit risk, control risk, inherent risk etc. To control risk of material misstatements, the auditors opt different procedures which reduce this erroneous situation. Commonly it is suggested and implemented by majority of the auditors to record all the material account in term of assets separately. If an asset occupies for more than 5 percent of the total assets, it should be recorded separately. By this technique, the financial statement will be more transparent and clear, and auditors will find them in an easy situation to locate the error if it exists and also rectify them in less time

Quote Guest, 7 May, 2017
Dear Sir

Can u explain the difference between a material fact and material misstatement and example of material fact which is not a material misstatement.

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