Risk of Material Misstatement Meaning

Accounting glossary · Understand, connect, apply

Risk of material misstatement is the risk that financial statements are materially misstated before the audit. It can be assessed for the statements as a whole and for specific assertions.

Example

A new sales system creates a risk that transactions will be recorded twice or omitted, affecting particular revenue assertions.

Remember the difference

At the assertion level, consider both susceptibility to misstatement and the ability of the entity’s controls to prevent or catch it.

Browse the accounting glossary · PCAOB reference: AS 1101

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Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.

Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.

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