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Vid: 6 - Risk, Material, Audit Risk, Risk Assessment Procedures, read…
Vid: 6 - Risk
What is Audit Risk
Expresses an Inappropriate/incorrect Opinion
Obtain Sufficient Evidence to Reduce
Audit Risk
to an acceptable minimum
identify risk of a
material
misstatement
Material
It influence economic decision of uses taken on a basis of financial statements
Professional Judgement (Considered as material)
Benchmark
1/2% - 1% of Revenue
5% - 10% of Profit before tax
1% - 2% of Asset Value
Profit turns into loss
Net assets turns into net liabilities
Performance Materiality
Amount set below the materiality level
The aim is to pick up more mistakes / cumulative could be material
Audit Risk
Risk of Material Misstatement
Inherent Risk
Due to the entity, item
Control Risk
Not picked up by internal control
Detection Risk
Sampling Risk
Sample vs The whole population
Non-Sampling Risk
Inappropriate Procedures
Risk Assessment Procedures
Procedures
Talk to management
Understand the entity or industry
Analytical procedures
Similar companies
Prior periods
Auditor Response
Allocate more staff
Allocate experienced staff
More substantive tests
read section 4 or 5 of complete text: audit risk identification and explanation