Risk Flashcards
Define audit risk
The risk of issuing an inappropriate audit opinion
What is inherent risk
Susceptibility of a balance to misstatement
Give an example of an inherent risk
Options:
A client in a volatile industry
Rapid changing technology
Complex accounting treatment
What is control risk
Clients controls fail to prevent and detect misstatement
Give an example of a control risk
Options:
Old accounting software
Lack of segregation of duties
Lack of authorisation procedures
What is detection risk
The risk that the auditor fails to detect material misstatement
Give an example of a detection risk
Options:
Using inappropriate procedures
Misinterpreting results
What is materiality
If its omission or misstatement could influence the economic decisions of users
What is the % materiality for revenue
0.5%
What is the % materiality for profit before tax
5%
What is the % materiality for total assets
1%
What are the risk assessment procedures
Enquiries with management
Analytical procedures
Observation
Name 2 examples of analytical procedures
Comparisons
Calculating ratios
Proving figures in total
