What are the steps for ascertaining reasonable assurance?

What are the steps for ascertaining reasonable assurance?

• A. Identify risks of material misstatement; Design tests to obtain sufficient evidence that no misstatement; Form an opinion.
• B. Identify risks; Form an opinion; Design tests.
• C. Design tests; Identify risks; Form an opinion.
• D. Form an opinion; Identify risks; Design tests.

Answer: (A)

The steps start with identifying risks of material misstatement. This risk assessment tells you where misstatements are most likely and where evidence will be most informative. Next, you design and perform tests to obtain sufficient and appropriate audit evidence aimed at those risks, so you can determine whether any misstatements exist and to what extent. Only after gathering and evaluating that evidence do you form an opinion on the financial statements. The order matters: risk identification drives what tests you perform, and you form your opinion only after obtaining evidence. Other sequences skip or rearrange these steps in a way that would undermine the basis for the opinion.

The steps start with identifying risks of material misstatement. This risk assessment tells you where misstatements are most likely and where evidence will be most informative. Next, you design and perform tests to obtain sufficient and appropriate audit evidence aimed at those risks, so you can determine whether any misstatements exist and to what extent. Only after gathering and evaluating that evidence do you form an opinion on the financial statements. The order matters: risk identification drives what tests you perform, and you form your opinion only after obtaining evidence. Other sequences skip or rearrange these steps in a way that would undermine the basis for the opinion.