What does ISA 330 recommend to manage risks identified in financial statements?

ISA 330, "The Auditor's Responses to Assessed Risks," emphasizes that after identifying and assessing risks of material misstatement, it is essential for auditors to determine an appropriate overall response. This means that auditors should develop strategies and procedures that directly address the levels of risk identified during the risk assessment phase. The overall response is not merely a passive acknowledgment of risks; it involves active steps to ensure that the audit addresses and mitigates those risks effectively.

By determining an overall response, auditors can tailor their audit approach, which may include changing the nature, timing, or extent of audit procedures. This approach enhances the auditor's ability to gather sufficient and appropriate audit evidence, ultimately leading to a more reliable basis for their opinion on the financial statements. In summary, ISA 330 focuses on the importance of a robust response to identified risks, ensuring that the audit remains effective and relevant to the specific conditions of the entity being audited.