Acca aaa s21 Notes

Spectrum of inherent risk
– the degree to which inherent risk varies.
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Relevant assertion
– an assertion with an identified risk of material misstatement.
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Significant class of transactions, account balance or disclosure – one for which there is one or 
more relevant assertion.
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Significant risk
– a risk of misstatement which is close to the upper end of the spectrum of 
inherent risk or treated as significant in accordance with an ISA (e.g. revenue recognition).
Understand the entity
Identify relevant assertions
Identify significant transactions, 
balances and disclosure
Determine where on the 
spectrum of risk
Significant risks identified
4. Materiality
One of the key areas of planning is to determine materiality. An audit gives only a 
reasonable 
assurance
that the financial statements are free from 
material misstatement, 
so it is essential to know 
what is meant by 
‘material’.
๏
A matter is material if its omission or misstatement would reasonably influence the economic 
decisions users taken on the basis of the financial statements.
๏
It is affected by the 
size
or 
nature
of the misstatement.
The auditor’s judgment flows all the way through the audit process, from planning and deciding the 
amount of work that should be done, to deciding what action should be taken should errors be found 
in the accounts. When judging materiality, the audit partner should consider the 
common
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information needs of users, as a group. (The specific needs of individual users are