In the audit of investments, the inherent risk of investments involves more on the existence and valuation of their balances. This is due to the risk of overstatement of investments being higher than the risk of an understatement and an overstatement, in this case, could be due to fraud.
-The inherent risk of investments is that clients’ investments may be stolen and their balances may be overstated to cover up the fraud. Additionally, as there are many types of investments, investments may be wrongly classified, either intentional or unintentional, resulting in improper valuation. Another issue concerning the valuation assertion of investment account is the lack of the client’s staff knowledge and the complexity of valuation itself.
-In the audit procedures for investments, we need to test various audit assertions, including existence, valuation, completeness, and rights and obligations.
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