Engagement Acceptance, Planning, and Risk Assessment Flashcards
Pre-acceptance procedures:
Inquiry of the predecessor auditor with permission from the client (required before accepting an engagement)
Control risk is assessed in terms of:
Financial Statement Assertions
Acceptable level of detection risk is INVERSELY related to:
The assurance provided by substantive tests.
Inherent Risk definition
The susceptibility of an assertion to a material misstatement based upon the nature of the account balance or transaction class assuming there are no related controls, (exists independently from and bears no direct relationship to control risk).
Audit risk recognized in standard report as
Reasonable assurance about whether the financial statements are free of material misstatement
Control risk definition
Risk that a material misstatement will not be detected (or prevented) on a timely basis by the entity’s internal control
Detection Risk definition
Risk that the audit procedures implemented will not detect a misstatement that exists in a relevant assertion
Inherent risk and control risk differ from detection risk in that they:
Exist independently of the financial statement audit
Audit cannot change/control which risks?
Inherent and control
Inversely related to RMM (Control risk and Inherent risk)
Detection risk
What provides more assurance? Negative confirmations or Positive confirmations?
Positive confirmations
Example of Inherent risk Limitation/factors:
Entity enters into derivative transactions as hedges
- Management can override the controls
- Collusion
Management override will cause which risk to increase?
Control Risk
