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

Statistical sampling-Advantages, Statistical sampling – Advantages a) It ...

Statistical sampling – Advantages a) It is scientific and defensible; b) It provides a precise mathematical statement about probabilities of being correct; c) It is efficie

Acl to perform audit procedures in audit program, Sales are shipped FOB shi...

Sales are shipped FOB shipping point with credit terms n/45. You have verified that the last shipping number used in 2009 was 261,336 and that numbers were used in numerical order.

Prepayments - audit process, Prepayments - Audit Process Prepayments s...

Prepayments - Audit Process Prepayments similar to accruals are not mostly checked through the double entry system. This creates them susceptible to mistake. The auditor's pro

Records kept by auditor, Records kept by AUDITOR of procedures applied, tes...

Records kept by AUDITOR of procedures applied, tests performed, the information obtained and pertinent conclusions reached in the course of the AUDIT. (2) Any records developed by

Inflation impact analysis, Please present an analysis of the attached case....

Please present an analysis of the attached case. Your analysis should be in the form of a memo not to exceed four pages plus appropriate exhibits. The memo should present your

List three main steps in applying materiality to an audit, QUESTION 1: ...

QUESTION 1: Part A When planning a financial statement audit, an audit manager must understand audit risk as well as its components. The firm of Jack and Jackie calculates

Judgmental sampling, Judgmental Sampling Judgment sampling is where th...

Judgmental Sampling Judgment sampling is where the auditor using his own experience and knowledge of the client's business and circumstances selects the sample to be tested wi

Providers of funds, Providers of Funds A further point to note is that ...

Providers of Funds A further point to note is that modern companies can be very large with multinational activities. Preparing accounts for such a group becomes a very complex

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