Question

Briefly write what the effect of a low risk of material misstatement would have on the extent, timing, and nature of substantive tests. Your answer should be no more than 3 sentences long.

Answer 1

The nature, timing and extent of substantive test depend on the risk associated with material misstatement. If the risk of Misstatement is high then nature, timing and extent of substattive test will be different from when risk of material misstatement is low. More Substantive test are involved when risk of material misstatement is high to ensure that statements are free from material misstatement, although when risk is low the intensity and volume of substantive tests are also low, and general auditing procedures are applied.

Areas such as Inventory valuation, Bad debt Provision, WIP valuation need special attention. The auditor’s assessment of risk is also responsible for nature, timing and extent of substantive test.