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Audit Risks and Materiality (Audit risk is influenced by: (Inherent risk…
Audit Risks and Materiality
Audit Risk
the risk that information may contain a material error that may go undetected during the course of the Audit.
Audit risk is influenced by:
Inherent risk
RISK LEVEL OR EXPOSURE
of the process/entity to be audited
without taking into account the controls that management has implemented.
exists independent of an audit and can occur
because of the nature of the business.
Control risk
risk that a material error exists that would not be prevented or detected on a timely basis
by the system of internal controls.
Computerized data validation procedures :
Control Risk is low if they are consistently applied
Detection risk
risk that
material errors or misstatements
that have occurred
will not be detected by the IS auditor.
Overall audit risk
probability that information or financial reports may contain material errors and that the auditor may not detect an error that has occurred.
IS auditor should have a good understanding of audit risk when planning an audit.
proper statistical sampling procedures
or
a strong quality control process,
the probability of detection risk can be reduced to an acceptable level
Materiality
IS auditor should be concerned with assessing
the materiality of the items in question through a
risk-based audit approach
to evaluating internal controls.
concept of materiality requires sound judgment from the IS auditor.