审计Audit—Arens14e_ch09_ppt_ge.ppt

* The second standard of fieldwork requires auditors to gain an understanding of the client’s business and assess client business risk. * * Planned detection risk is the risk that audit evidence for a segment will fail to detect misstatements exceeding tolerable misstatement. Planned detection risk is dependent on the other three factors in the model. Inherent risk measures the auditor’s assessment of the likelihood that there are material misstatements due to error or fraud in a segment before considering the effectiveness of internal control. Control risk measures the auditor’s assessment of whether misstatements exceeding a tolerable amount in a segment will be prevented or detected on a timely basis by the clients internal controls. Acceptable audit risk is a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued. * PDR = Auditor fails to detect misstatements the tolerable amount AAR = Auditor will incorrectly issue a “clean” opinion IR = Risk of material misstatements before considering internal controls CR = Internal controls fail to prevent or detect material misstatements * * * * * This is where the auditor will place reliance on prior experience with this client and management’s attitude toward controls and governance, accounting standards and the audit relationship. * * * * * As control risks increase, the auditor will want to gather additional evidence to minimize the risk of failing to find a material misstatement. * * * Inherent risk factors will have varying degrees of impact on balance sheet accounts. For example, inventory has greater risks than fixed assets in a wholesale distribution company, yet the materiality threshold for both accounts will most likely be the same since a correction to either account will impact the income statement. * * Due to the judgmental nature of evaluating and assessing risk at