Types Of Audit Risk

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How to face audit Risk ?

Assessment

 The auditor should design and implement overall responses to address the assessed risks of material misstatement as follows:

Making appropriate assignments of significant engagement responsibilities. 

The knowledge, skill, and ability of engagement team members with significant engagement responsibilities should be commensurate with the assessed risks of material misstatement.

Providing the extent of supervision that is appropriate for the circumstances, including, in particular, the assessed risks of material misstatement. 

Incorporating elements of unpredictability in the selection of audit procedures to be performed. As part of the auditor's response to the assessed risks of material misstatement, including the assessed risks of material misstatement due to fraud ("fraud risks"), the auditor should incorporate an element of unpredictability in the selection of auditing procedures to be performed from year to year.

Significance

Auditors are required to assess inherent risk and control risk on three levels: maximum or high risk, moderate or medium risk and low risk. If the inherent and control risks are high, the detection risk must be low in order to have a low overall audit risk. Therefore, the auditor has to carry out more detection procedures to be reasonably assured that the financial statements are free of material misstatements.

A low audit risk is important because it is not possible for auditors to verify all transactions. Auditors tend to focus on key risk areas

For example, overstated revenues or understated costs, where it is more likely that errors will lead to material misstatements on the financial statements.

Auditing standards require auditors to plan and perform audits with professional skepticism because there is always the possibility that the financial statements are materially misstated. Professional skepticism involves a questioning mind and a critical evaluation of evidence.

Conclusion

Types Of Audit Risk

Presented By:

Farid George

Essam Ramadan

Islam Mohamed Yehya

Marwan EzzElArab

To Dr. Marwa Tarek

Detection Risk

The project overviewed types of audit risks which are classified into Inherent, Control and Detection risks Focusing on the methods the auditor would use in order to evaluate them which vary between internal control system, control test and documentation. Any Auditor Should take care of and consider these risks in order to make a well Auditing and a well report to the Firm he should also consider to obtain sufficient competent evidence for the circumstances , to make his costs reasonable and to Know general audit objectives for classes of transactions and accounts and management assertions about accounts

Detection risk is the risk that an audit might not be able to detect a material misstatement. For example, if there are revenue or cost misstatements on a company's income statement, detection risk refers to the possibility that an audit fails to detect these misstatements and, consequently, expresses an inappropriate favorable opinion.

Control Risk

Control risk is the risk that one or more material misstatements might not be detected on a timely basis by the organization's internal control systems.

For example, if the revenue is misstated on a company's income statement, control risk means that the company's internal auditing processes will not be able to catch it before the financial statements are published.

Types of audit risk

What Is Audit ?

• Inherent Risk
• Control Risk
• Detection Risk
• Assessment
• Significance

Audit is an unbiased examination and evaluation of the financial statements of an organization. It can be done internally (by employees of the organization) or externally (by an outside firm).

Inherent Risk

Inherent risk is a measure of the auditor’s assessment of the likelihood that there are material misstatements in an account balance before considering the effectiveness of internal control.

What is Audit Risk?

• Audit risk is the risk that an auditor will fail to modify his or her opinion when the financial statements contain a material misstatement.
• The overall goal of an audit is to form and express an opinion, on whether the financial statements give a true and fair view based on presented financial statements prepared by management.
• Low audit risk is important because it is not possible for auditors to verify all transactions for the time being and they perform audit based on sampling. Auditors tend to focus on key risky issues for example, overstated revenues, and understated costs that may likely have error in the financial statements.