Audit ch07 slides

Audit ch07 slides - Chapter 7 Assessing Risks and Internal...

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Chapter 7 Assessing Risks and Internal Control
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Slide 2 Audit Risk Assessment Auditing is fundamentally a risk management process. Need to assess risk in audit terms inherent risk control risk and detection risk.
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Slide 3 Audit Risk The probability that an auditor will fail to express a reservation that financial statements are materially misstated is audit risk.
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Slide 4 Risk Model AR = IR x CR x DR Audit risk will occur when: – a material misstatement has been made in the transactions or balances (inherent risk), – and internal controls fail to detect or correct the misstatement (control risk), and – audit procedures also fail to detect the misstatement (detection risk). • Auditors usually like to limit audit risk to less than 5%.
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Slide 5 How Materiality and Audit Risk are Related Materiality refers to the magnitude of a misstatement; audit risk refers to the level of assurance that material misstatement does not exist.
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Slide 6 Business Risk-Based Approach to Auditing The business risk-based approach to auditing requires the auditor to understand the auditee’s business risks, management’s strategy for addressing those risks, and the business processes it uses to implement the strategy.
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Slide 7 Management’s Financial Statements To simplify the audit plan, auditors typically group the accounts into several accounting processes. • (1) revenues and collection
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This note was uploaded on 12/18/2011 for the course BUSINESS 4754 taught by Professor Khan during the Fall '09 term at Ryerson.

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Audit ch07 slides - Chapter 7 Assessing Risks and Internal...

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