A significant account is one that has a reasonable chance of containing a material misstatement. Auditors identify significant accounts and relevant assertions using the audit risk model, which includes:

• Audit Risk (AR) – The risk that auditors issue an unqualified opinion on materially misstated financial statements.

• Risk of Material Misstatement (RMM) – Includes:

  • Inherent Risk (IR): The likelihood of misstatement due to the account’s nature.

  • Control Risk (CR): The probability that internal controls fail to detect or prevent misstatements.

• Detection Risk (DR) – The risk that auditors’ substantive procedures fail to detect misstatements.

Significant Accounts in the Revenue and Collection Cycle

The most significant accounts in this cycle include:

• Revenue

• Accounts Receivable

These accounts are inherently risky due to the tendency to overstate sales and inflate revenue, making existence and occurrence assertions particularly critical.

Relevant Assertions

Assertions refer to management’s representations about financial statement elements. The most relevant assertions in the revenue cycle include: