Audit Risk
Essay by people • March 27, 2012 • Study Guide • 384 Words (2 Pages) • 1,526 Views
Audit Risk
Current Audit Environment
The following factors lead to increased risk for the auditor
* Demands for increased transparency and integrity
* Increased minimum standards for auditing
* Increased accountability
* Relentless negative publicity
* Business and accounting complexity
* Auditor needs to provide reasonable assurance
Risk: The uncertainty of an event occurring that could have an impact on the achievement of objectives
Risk Assessment: A systematic process for assessing and integrating professional judgements about probable adverse conditions or events.
Audit Risk: The chance that an incorrect opinion will be issued, which could lead to audit failure.
Reality of Risk
* Cannot completely eliminate risk
* Limits to amounts clients will pay
* Limits to amount of time auditors can spend on an audit
* Audit risk should be at a level the auditor finds economic and comfortable
Audit Risk Management:
* Measure and control the overall risk
* Audit risk analysis approach used by auditors examines factors that are likely to lead to audit failure then attempt to reduce likelihood
* A risk approach assists auditors to identify areas which require more detailed examination
Detection Risk: only controllable risk by the auditor. It is the risk that the auditor will not detect a misstatement that exists.
STR (Substantive Testing Risk): detailing auditing procedures such as re-performing journals, reconciliations, and counting stock.
Sampling Risk: is the risk that the auditors conclusion based on the sample may be different to the conclusion reached if the entire population were subjected to the same procedure.
Non-Sampling Risk: the risk that auditors might use inappropriate procedures or misinterpret evidence and fail to recognise an error.
APR (Analytical Procedure Risk): is the risk uncovered by audit procedures involving specific analytical review
Control Risk: only assessed by the auditor. It is assessed through understanding parts of the clients accounting information system and evaluating whether the controls in place are
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