The assessment of materiality and the relative importance of quantitative and qualitativefactors in a particular engagement are matters for the practitioner’s judgment. Assurance Engagement Risk Assurance engagement risk is the risk that the practitioner expresses an inappropriateconclusion when the subject matter information is materially misstated.
In a reasonable assurance engagement, the practitioner reduces assurance engagement riskto an acceptably low level in the circumstances of the engagement to obtain reasonableassurance as the basis for a positive form of expression of the practitioner’s conclusion. Thelevel of assurance engagement risk is higher in a limited assurance engagement than in areasonable assurance engagement because of the different nature, timing or extent ofevidence gathering procedures. However, in a limited assurance engagement, the combination of the nature, timing andextent of evidence gathering procedures is at least sufficient for the practitioner to obtain ameaningful level of assurance as the basis for a negative form of expression. To bemeaningful, the level of assurance obtained by the practitioner is likely to enhance theintended users’ confidence about the subject matter information to a degree that is clearlymore than inconsequential. In general, assurance engagement risk can be represented by the following components,although not all of these components will necessarily be present or significant for allassurance engagements: (a) The risk that the subject matter information is materiallymisstated, which in turn consists of: (i)Inherent risk -the susceptibility of the subject matterinformation to a material misstatement,assuming that there are no related controls; and(ii)Control risk -the risk that a material misstatement that couldoccur will not be prevented, or detected andcorrected, on a timely basis by related internalcontrols. When control risk is relevant to thesubject matter, some control risk will always
exist because of the inherent limitations of thedesign and operation of internal control (b) Detection risk -the risk that the practitioner will not detect a material misstatement that exists. The degree to which the practitioner considers each of these components is affected by theengagement circumstances, in particular by the nature of the subject matter and whether areasonable assurance or a limited assurance engagement is being performed. Nature, Timing and Extent of Evidence-Gathering Procedures The exact nature, timing and extent of evidence-gathering procedures will vary from oneengagement to the next. In theory, infinite variations in evidence gathering procedures arepossible. In practice, however, these are difficult to communicate clearly and unambiguously. Thepractitioner attempts to communicate them clearly and unambiguously and uses the formappropriate to a reasonable assurance engagement or a limited assurance engagement.