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nature risk (audit risk (Audit planning (Developing an Understanding of…

- - - - audit that provides reasonable assurance that material misstatements will be detected
      - dimension
        
        Size of the misstatement (dollar amount)
        
        The lower the dollar amount of set materiality, the more rigorous(ketat) the examination
        
        Circumstances - some things are viewed more critically than others
        
        User impact - impact on potential users and the type of judgments made
      - guideline to set
        
        applying percentages
        
        nature of the industry
      - cannot separate with audit risk
        
        Auditors need to understand society's expectations of financial reporting and the audit process
        
        Auditors must identify the risky areas of a business to determine which accounts are more susceptible(terdedah) to material misstatement
        
        cannot be 100% free from misstatement to provide assurance
  - - - Control Risk
        
        quality of controls often varies between classes of transactions
      - Environment Risk - inherent and control risks combined
      - Inherent Risk - Susceptibility of transactions to be recorded in error
        (misstated)
        
        Complex transactions
        
        Estimated balances
      - Detection risk
        
        Relates to the effectiveness of audit procedures
        
        detection risk INVERSELY to environment risk
      - Example, if the auditor is examining transactions with high inherent risk, or weak controls, the auditor will set a low detection risk
        
        a low probability of NOT detecting material misstatements
        
        auditor will have to perform more rigorous substantive testing