AUDITING RISKS - Paper July 2015 - AUDITING RISKS Stacy Jones AC503 Advanced Auditing Prof Cynthia Waddell Audit Risk is the risk that an auditor

AUDITING RISKS - Paper July 2015 - AUDITING RISKS Stacy...

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AUDITING RISKS Stacy Jones 07/18/2015 AC503: Advanced Auditing Prof: Cynthia Waddell
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Audit Risk is the risk that an auditor expresses an inappropriate opinion on the financial statements. Audit risk may be considered as the product of the various risks which may be encountered in the performance of the audit. In order to keep the overall audit risk of engagements below acceptable limit, the auditor must assess the level of risk pertaining to each component of audit risk. Audit risk may be considered as the product of the various risks which may be encountered in the performance of the audit. In order to keep the overall audit risk of engagements below acceptable limit, the auditor must assess the level of risk pertaining to each component of audit risk. The model is: Audit Risk = Inherent Risk x Control Risk x Detection Risk Inherent Risk is one of the major items or topics that are a part of auditing and here is what I have found. It is considered to be a risk of material misstatement in the financial statements arising due to error or omission as a result of factors other than the failure of controls. Factors that may cause a misstatement due to absence or lapse of controls are considered separately in the assessment of control risk. Inherent risk is also generally considered to be higher where a high degree of judgment and estimation is involved or where transactions of the entity are highly complex. Inherent risk in the audit of a newly formed financial institution which has a significant trade and exposure in complex derivative instruments may be considered to be significantly higher exposure as compared to the audit of a well-established manufacturing concern operating in the relatively stable competitive environment.
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The next topic that I wanted to bring up with regards to audit risk just so happens to be Control Risk which is the risk of a material misstatement in the financial statements arising due to absence or failure in the operation of relevant controls of the entity. Organizations must have adequate internal controls in place to prevent and detect instances of fraud and error.
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