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RISK - Coggle Diagram
RISK
Material
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How do we determine : Professional Judgement of the auditors. Benchmark to start off is 0,5% - 1% of revenue (in a lot of cases), 5% - 10% of profit before tax, 1% - 2% of the asset value
an item can be material if it turns profit into a loss. Similarly, it can be material if it turn net assets into net liability
Professional Judgement of immateriality highlights Performance materiality (the auditor will set a level of immateriality lower than the calculated materiality level, on a basis where if it's lower then it has more chance to identify the true material remains or more mistake (cumulative could be material.))
Audit risk
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gives the auditor expresses an inappropriate opinion. Ex : The FS is true and fair but actually aren't
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Obtain Sufficient evidence to reduce audit risk to an acceptable minimum (Read section 4 or 5 until complete)