Chapter 5 - Outlines Chapter 5 -1 Chapter 5 AUDIT EVIDENCE...

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Outlines Chapter 5 -1 Chapter 5 AUDIT EVIDENCE 2009 A AUDIT RISK—Risk that an auditor fails to modify opinion on misstated statements. At the account level it is a function of three risks: Inherent risk —Risk of material misstatement in an account, assuming there are no related controls Control risk —Risk that a material misstatement will not be prevented or detected by the internal control. Detection risk —Risk that the auditor’s procedures (analytical procedures and tests of details of transactions and balances) lead her/him to conclude no material misstatement exists when in fact a material misstatement does exist. Audit risk model (simple minded view): Audit Risk = Risk of material * Risk auditor doesn't Misstatement detect misstatements Audit Risk = Inherent Risk * Control Risk * Detection Risk Auditor obtains Tests of Substantive knowledge of ind- Controls Procedures ustry, client and specific accounts to identify areas of risk Analytical Tests of Details Procedures of (1) Transactions (2) Balances and (3) Disclosures B Sufficient appropriate audit evidence 1. Figure 5-3 presents audit terminology (make sure you are comfortable with it.) 2. Wording of the third field work standard: The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.
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Outlines Chapter 5 -2 Appropriate —a measure of audit evidence quality--relevance and it reliability (recall, appropriate replaces competent) What makes audit evidence reliable? 1.
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This note was uploaded on 09/08/2010 for the course BUS 129A at San Jose State University .

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Chapter 5 - Outlines Chapter 5 -1 Chapter 5 AUDIT EVIDENCE...

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