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Risks, Methods used to gather evid (for both assurance & non-assurance…
Risks
Detection risk (DR)
- auditor's substantive testing failed to detect the misstatement in a/c bal & classes of transaction
- balancing figure, determine the sample size
Low risk client
- DR = high
- reliability factor = low
- sample size = small
High risk client
- DR = low
- reliability factor = high
- sample size = large
Inherent risk (IR)
- a/c bal & classes of transactions misstatement irrespective of the presence of internal ctrl
- the biz itself
- the environment
-
Audit risk (AR)
- risk tht auditor may issue an invalid audit opinion
Ctrl risk (CR)
- internal ctrl failed to prevent, detect / correct misstatement in a/c bal & classes of transactions
Risk of material misstatement (RMM)
- FS risk, :red_cross:include auditor, :red_cross:DR
-
Biz risk (BR)
- event / events cause co unable to achieve its goals & obj
- events may originate from:
- operation
- eg. breakdown of machinery, stock out, strike by union leader
- financial
- eg. default in payment by credit customers, unfavourable movement of exchange rate, increase int rate when co has high gearing, overtrading
- compliance
- eg. risk of breaching laws & regulations / internal policies & procedures
-
:red_flag:In answering AR & RMM Q, ans must relate to 'how the FS will be affected by the risk identified & a/c bal affected (understated / overstated), otherwise it is known as biz risk
:red_flag:In answering BR Q, see yourself as directors instead of auditor
:red_flag:In exam:
- describe type of comparison auditor need to perform
- explain outcome of the comparison
:red_flag:In exam:
- mention person tht auditor want to enquire
- matters tht the person shld reply to auditor
:red_flag:In exam:
- name the book, doc / record tht auditor want to review
- the info tht auditor need to focus on
:red_flag:In exam:
- mention the items tht auditor need to physically inspect
- highlight the outcome & implication on audit
:red_flag:In exam:
- mention the a/c bal tht auditor need to perform computation
- highlight the outcome & implication on audit
:red_flag:In Q1, the audit procedures always relate to a/c std, recall the criteria in the std followed by using AEIOU to test the fulfilment of criteria