Audit risk - part 4

In this lesson

1. 0:00 Identifying audit risks from transactions
2. 1:15 Specific examples of asset and expense risks
3. 2:03 Why auditors focus on financial statement misstatements
4. 3:01 Linking transactions to potential balance sheet errors
5. 4:01 Development costs and intangible asset capitalisation
6. 5:03 Advertising expenses and the accruals concept
7. 5:29 Share issues, loans, and liability classification
8. 6:07 Property revaluation and depreciation adjustments

About this lesson

The video walks you through the core technique: when you're given information about a transaction or business event, use your knowledge of International Financial Reporting Standards to pinpoint which balance in the accounts could be wrong. For example, if a client built a new warehouse, the risk is that non-current assets could be misstated; if they have weak accounting systems and a cash business, sales revenue is at risk of being incorrectly recorded. The focus is always on financial statement misstatement, not general business risk—the auditor only cares about numbers that could be wrong in the accounts. You'll work through four practical scenarios covering common audit situations: capitalisation of intangible assets, allocation of expenses across periods, recording of share issues and loans, and revaluation of property. For each, you'll learn to identify which specific balances are vulnerable and why. This forms the foundation for understanding how auditors then respond to these risks with appropriate audit procedures. By the end, you'll be confident linking any transaction or event in a scenario directly to the financial statement balance most likely to be misstated—a critical skill for case study and objective test questions in AA.

Duration: 7m