Audit Risk

Audit Risk

Current Audit Environment

The following factors lead to increased risk for the auditor

* Demands for increased transparency and integrity

* Increased minimum standards for auditing

* Increased accountability

* Relentless negative publicity

* Business and accounting complexity

* Auditor needs to provide reasonable assurance

Risk: The uncertainty of an event occurring that could have an impact on the achievement of objectives

Risk Assessment: A systematic process for assessing and integrating professional judgements about probable adverse conditions or events.

Audit Risk: The chance that an incorrect opinion will be issued, which could lead to audit failure.

Reality of Risk

* Cannot completely eliminate risk

* Limits to amounts clients will pay

* Limits to amount of time auditors can spend on an audit

* Audit risk should be at a level the auditor finds economic and comfortable

Audit Risk Management:

* Measure and control the overall risk

* Audit risk analysis approach used by auditors examines factors that are likely to lead to audit failure then attempt to reduce likelihood

* A risk approach assists auditors to identify areas which require more detailed examination

Detection Risk: only controllable risk by the auditor. It is the risk that the auditor will not detect a misstatement that exists.

STR (Substantive Testing Risk): detailing auditing procedures such as re-performing journals, reconciliations, and counting stock.

Sampling Risk: is the risk that the auditors conclusion based on the sample may be different to the conclusion reached if the entire population were subjected to the same procedure.

Non-Sampling Risk: the risk that auditors might use inappropriate procedures or misinterpret evidence and fail to recognise an error.

APR (Analytical Procedure Risk): is the risk uncovered by audit procedures involving specific analytical review

Control Risk: only assessed by the auditor. It is assessed through understanding parts of the clients accounting information system and evaluating whether the controls in place are

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