Overcome Risk Assessment Violations

Have you seen the AICPA’s infographic on the four most common risk assessment violations? The organization starts by saying this. “Identifying, assessing and responding to risks of material misstatement are at the core of every audit.” That statement should not be new news to you. However, ten years after issuing the Risk Assessment Standards, it IS still an issue. In fact, and unfortunately, a Peer Review study shows more than one in ten firms ARE NOT properly assessing risk or linking assessments to audit procedures. More than one in ten – that is a lot! If your firm falls into that group then you might be thinking that you are not using the best methodology to perform your engagements … and you are likely right.

With that said, Wolters Kluwer has the help you need today. Before we get into how, though, first read the AICPA’s risk assessment infographic below.

AICPA Four Most Common Risk Assessment Violations

overcome risk assessment violations

Reprinted with permission.

Regarding how Wolters Kluwer can help, read on to learn how CCH ProSystem fx Knowledge Coach provides the tools and guidance you need to overcome the most commonly identified risk assessment violations.

Overcome Internal Control Violations

Internal Control – Knowledge Coach requires the auditor to scope the engagement based on:

  • Materiality
  • Significant risk
  • Fraud risk, and
  • Nature of transactions

As part of this scoping exercise, Knowledge Coach also requires the auditor to identify – based on those factors – the level of internal control understanding needed for:

  • Each significant account
  • Class of transactions, or
  • Disclosure based

This scoping is foundational to the Knowledge-Based Audit methodology, and drives risk assessment and development of further audit procedures. If the auditor attempts to move forward in the engagement without scoping, he/she will receive diagnostics alerting them to complete this work before proceeding.

Additionally, Knowledge Coach provides the auditor with resources to understand the design and implementation of internal controls including:

  • Performing effective walkthroughs
  • Articulating “what can go wrong,” and
  • Identifying necessary controls over financial reporting

Overcome Insufficient Risk Assessment Violations

Insufficient Risk Assessment – Knowledge Coach is a risk-based methodology that directs the auditor to obtain a thorough understanding of:

  • The entity
  • Its environment, and
  • Its internal controls

This gives him/her the information needed to truly identify the specific risks associated with the engagement.

In addition, the solution prompts the auditor to consider and assess whether the results of procedures performed have identified risks that need documenting and linking to an appropriate response. These prompts happen:

  • In every phase of the engagement, and
  • At the end of every workpaper

Knowledge Coach allows the auditor to add these risks quickly and easily from anywhere in the engagement.

Overcome No Linkage Violation

No Linkage – By design, Knowledge Coach specifically links program steps to identified-risks, and alerts the auditor when this linkage is incomplete. This encourages the auditor to consider why he/she is performing a specific step. Additionally, it helps ensure the auditor is doing an appropriate amount of audit work in response to the risk assessment. Said differently, what it does is ensure that the auditor is not over or under auditing.

Overcome Improper Control Risk Violation

Improper Control Risk – When the auditor assesses control risk at less than maximum, and has indicated that he/she is not testing operating effectiveness of controls, Knowledge Coach provides a diagnostic alert to the auditor indicating a discrepancy in the audit plan. To clear the diagnostic, the auditor must either:

  • Set control risk to maximum, or
  • Test the operating effectiveness of controls

When the auditor chooses to test the operating effectiveness of controls, Knowledge Coach prompts the auditor to consider whether the results of those tests continue to support a control risk assessment of less than maximum.

Invest in the Solution Designed to Help

The bottom line is this. If you have not yet adopted Knowledge Coach then you are probably in that “one in ten firms” group. So take steps now to get out of it. Where do you start? Well, learn what your peers are saying and then see the solution with your own eyes. Those are two good first steps. For example, Brad Caruso of Withum shares insights on the value of the Integrated Audit Approach for his firm. The Integrated Audit Approach includes CCH Audit Accelerator, CCH ProSystem fx Engagement, TeamMate Analytics and CCH Accounting Research Manager, along with Knowledge Coach.

Caruso says, “From a documentation standpoint, Knowledge Coach is fantastic because it provides the essence of what auditing is, and that’s auditing to risk.”

Take Action Today

Are you ready to overcome the four most common risk assessment violations identified by the AICPA? Then read the full Withum case study, and register for a complimentary demonstration of Knowledge Coach.

Thank you Knowledge Coach. Now every audit can overcome those common risk assessment violations.


Wendy Cable

All stories by: Wendy Cable