## Significant Risks — Risks That Require Special Audit Consideration
Significant risks are identified risks of material misstatement that, in the auditor's judgment, require special audit consideration beyond the standard risk response.
### Factors for Identifying Significant Risks — Mnemonic: FECROS
| Letter | Factor |
|---|---|
| F | Whether the risk is a risk of fraud |
| E | Whether related to recent significant economic, accounting, or other developments (e.g., regulatory changes) |
| C | The complexity of transactions |
| R | Whether significant transactions with related parties are involved |
| O | Whether risk involves significant transactions outside the normal course of business or unusual transactions |
| S | Degree of subjectivity in measurement (especially where measurement uncertainty is wide) |
### When are Risks of Material Misstatement (ROMMs) Greater?
For Significant Non-Routine Transactions:
- Greater management intervention needed to specify accounting treatment
- Greater manual intervention for data collection and processing
- Complex calculations or accounting principles involved
- Nature of the transaction makes effective controls difficult to implement
For Significant Judgmental Matters:
- Accounting principles are subject to differing interpretation (e.g., estimates, revenue recognition)
- Required judgment is subjective or complex
- Requires assumptions about the effects of future events (e.g., fair value measurements)
### Practical Link
Significant risks generally require:
- Substantive procedures that specifically address the risk
- Consideration of whether substantive procedures alone are sufficient (or whether tests of controls are also needed)
- Direct communication to those charged with governance if a significant deficiency is found