Introduction to SA 315

Risk-based auditing is central to an effective audit, as it enables audit effort to be directed to areas of higher risk of material misstatement (RoMM), improving both audit quality and efficiency. Identification and assessment of RoMM helps the auditor to respond to those risks and eventually issue an appropriate audit opinion. We explored this aspect earlier in our article ‘Risk-Based Approach to Audit in International Landscape’. This article revisits SA 315 to highlight common implementation pitfalls and their implications for audit quality in practice.

Standard on Auditing (SA) 315 is a foundational standard that outlines the auditor’s responsibility to identify and assess the risks of material misstatement in financial statements. This is achieved by obtaining a deep understanding of the entity, its operational environment, and its internal controls. The auditor has an objective to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels, through understanding the entity and its environment, including the entity’s internal control. This provides a basis for designing and implementing auditors’ responses to the assessed ROMM. This will assist the auditor in reducing the audit risk to an acceptably low level.