Term
| What are the 5 risks in all operations? |
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Definition
Controlling
Accepting
Avoiding
Diversifying
Sharing and Transferring |
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Term
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Definition
| Audit Risk – the risk that the auditor may unknowingly fail to appropriately modify their opinion on the FS that are materially misstated. |
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Term
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Definition
| Inherent Risk – Assuming NO related internal control procedure is established, the risk that an assertion is a material misstatement |
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Term
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Definition
| Control Risk – risk that a material misstatement could occur in a assertion and will not be prevented or detected on a timely basis by systems of Internal Controls |
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Term
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Definition
| Detection Risk – risk the auditor will not detect a material misstatement that exists in an assertion |
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Term
| What are some Factors Affecting Acceptable Audit Risk? |
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Definition
- The degree to which external users rely on the statements
- The likelihood that a client will have financial difficulties after the audit report is issued
- The auditor’s evaluation of management’s integrity |
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Term
What are the Methods Practitioners Use to Assess Acceptable Audit Risk for
these three factors?
1) External users’ reliance on financial statements
2) Likelihood of financial difficulties
3) Management integrity |
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Definition
1) Examine financial statements, Read minutes of the board, Examine form 10K, Discuss financing plans with management
2) Analyze financial statements for difficulties using ratios, Examine inflows and outflows of cash flow statements
3) Tone at the Top |
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Term
| What are Factors Affecting Inherent Risk? |
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Definition
- Nature of the client’s business
- Results of previous audits
- Initial versus repeat engagement
- Related parties
- Nonroutine transactions
- Judgment required to correctly record account balances and transactions
- Makeup of the population
- Factors related to fraudulent financial reporting
- Factors related to misappropriation of assets |
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