By Jennifer Louis, CPA

Generally accepted auditing standards require a direct linkage of assessed risks of material misstatement to the detailed audit plan. A thoughtful approach to this task can lead to more effective and efficient audits, and without one, over-auditing or under-auditing may result.


Imagine that you are at an all-you-can-eat buffet. As you work your way down the line, you add one serving of everything on your plate – regardless of what your nutritional needs are or how hungry you may be. What would your plate look like when you are done? It would be a mess. Everything you would need to sustain yourself would be in there somewhere, but your applesauce would be mixed in with your chocolate pudding, and peas would be falling off the side of the plate. Gross, right? 


Similarly, many auditors treat their audit methodology programs, templates and practice aids like that. These auditors think that by filling in every blank and performing every audit program step made available, they are doing a quality audit. However, in actuality, a big picture audit issue may be missed, or more work may be performed than necessary.


Carrying forward the audit buffet analogy, how could the detailed audit plan look under various audit risk scenarios?

– If risk of material misstatement is “super low” – your plate could be covered with just a few handfuls of iceberg lettuce. Not a lot of nutritional value is necessary to curb your hunger, so preliminary and final analytic review may be sufficient and appropriate without a separate audit program.

– If risk of material misstatement is “low” – you might add a supporting schedule for a significant account balance, tie it to the general ledger, compare the balance to last year and ask some key questions of management. It is like getting your four basic food groups on the plate.

– If risk of material misstatement is “moderate” – you might do all of the above, but also strengthen the analytical procedures to be a reasonable test based on nonfinancial data. The auditor may also apply judgment to examine specific transactions that are deemed quantitatively or qualitatively significant. It is like adding a sauce on your grilled chicken to add another flavor dimension.

– If risk of material misstatement is “high” – you might do all of the above, but use coverage or sampling to determine your extent of testing. You also may perform more disaggregated analytics, such as by month or product line. It is like purposefully adding beans instead of steak to your plate because you are a vegetarian. There is a specific identified risk that you have to address in your detailed audit plan.

– If risk of material misstatement is “super high” – you might need to get your most persuasive audit evidence in detail testing, such as through external confirmation. This is like carb-loading before a marathon because you know you won’t finish the race without the extra energy boost. You have a specific identified risk requiring special audit consideration.


Auditors should ensure that they purposefully fill their plate to match their needs, which should be linked to the assessed risks of material misstatement.

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