Risk and Materiality-Handout

Auditing and Assurance Services

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assuming that there are no related controls.  Things to consider: o Nature of client’s business o Results of previous audits  o Dollar size of account o Liquidity o Volume of transactions o Routine vs. non-routine transactions o Complexity of transactions/accounting o Subjective estimates
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Internal Controls The risk that a material misstatement that could occur will not be  prevented or detected on a timely basis by the company’s internal  control.  What are key areas to consider in assessing control activities ? Segregation of duties Performance reviews (independent checks on performance) Physical controls Proper authorization of transactions & activities Adequate documentation & records
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Detection Risk The probability that audit procedures will fail to produce evidence of material misstatements, should they exist Non-sampling Risk Sampling Risk
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Us ing  the  Audit Ris k Mo de l AR      =          IR        ×         CR          ×        DR Assess the client’s business risks.
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