Audit risk, Auditing

Assignment Help:

AUDIT RISK

As we have seen many parties rely on the audit opinion to make decisions, and therefore it is now a well established fact that if the auditor gives an audit opinion that is wrong in some particular then they stand a chance of suffering some damage.

Audit risk therefore could be defined as the chance of damage to the audit firm as a result of giving an opinion that is wrong in some particular. Or put another way, it could be explained as the possibility that financial statements contain material mis-statements which had escaped detection by both an internal control on which the auditor has relied and on the auditor's own substantive tests and other work.

It could be looked at also as: the possibility that the auditor may be required to pay damages to the client or other persons as a consequence of:

1. The financial statements containing a mis-statement;
2. The complaining party suffering a loss as a direct consequence of relying on the financial statement and
3. Negligence by the auditor in not detecting any reporting on the mis-statement which can be demonstrated.

Damage to the audit firm or the auditor may be in the form of monetary damages paid to the complainant as compensation or simply damage to their reputation with a client or the business community.

All audits involve an element of risk such that however strong the audit evidence and however careful the auditor, there is always a possibility of an error or a fraud going undetected. It is generally known that the auditor who organises his office and staff in a competent manner and follows auditing standards and guidelines is unlikely to be found negligent and to pay damages as a consequence of fraud or error not being discovered by him.

Audit risk can be either normal or higher than normal.


Related Discussions:- Audit risk

Necessity of accountant, Necessity of Accountant The accountant is no...

Necessity of Accountant The accountant is not necessary To expand his enquiries beyond the information enclosed in the relevant documents as supplemented through such e

Memo 2, Mr. Howe, a Junior Partner of the CPA firm Dewey, Cheatem, & Howe ...

Mr. Howe, a Junior Partner of the CPA firm Dewey, Cheatem, & Howe (DCH), after noting that there is a proposal to limit Auditor liability is very excited and has announced that th

Joint audit, Advantages and disadvantages

Advantages and disadvantages

Banks features, Banks Features (a) Profit and loss account: When l...

Banks Features (a) Profit and loss account: When looking at a bank's profit and loss account the accountant should seek to discover what proportions of the bank's profits

Examples of specialists, Examples of Specialists Examples of specialis...

Examples of Specialists Examples of specialists or experts whose work may be relied upon include: For valuations such as land and buildings, machinery and plant,

Communication, strongest mediul of communication

strongest mediul of communication

Explain what further evidence you would seek in relation, 1. On 5 August 20...

1. On 5 August 2012, the financial controller informed you that the board has recently received a letter from the assistant general manager, Mr. Tan. The letter contains a confessi

Valuation - detailed audit of stock, Valuation - Detailed Audit of Stock ...

Valuation - Detailed Audit of Stock IAS 2 prescribes such stock be priced at the lower of price and net realizable price, It is up to the auditor to ensure that net realizable

Fitri, The following situations involve a possible violation of the MIA ByL...

The following situations involve a possible violation of the MIA ByLaws (on professional ethics, conduct and practice). For each situation, (1) decide whether or not the Code has b

Audit Plan for small service company, only needs to be 2 - 3 pages and I ne...

only needs to be 2 - 3 pages and I need help with an audit plan is to look like

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd