Audit risk, Auditing


As we have seen many parties rely on the audit opinion to make decisions, and therefore it is now a well established fact that if the auditor gives an audit opinion that is wrong in some particular then they stand a chance of suffering some damage.

Audit risk therefore could be defined as the chance of damage to the audit firm as a result of giving an opinion that is wrong in some particular. Or put another way, it could be explained as the possibility that financial statements contain material mis-statements which had escaped detection by both an internal control on which the auditor has relied and on the auditor's own substantive tests and other work.

It could be looked at also as: the possibility that the auditor may be required to pay damages to the client or other persons as a consequence of:

1. The financial statements containing a mis-statement;
2. The complaining party suffering a loss as a direct consequence of relying on the financial statement and
3. Negligence by the auditor in not detecting any reporting on the mis-statement which can be demonstrated.

Damage to the audit firm or the auditor may be in the form of monetary damages paid to the complainant as compensation or simply damage to their reputation with a client or the business community.

All audits involve an element of risk such that however strong the audit evidence and however careful the auditor, there is always a possibility of an error or a fraud going undetected. It is generally known that the auditor who organises his office and staff in a competent manner and follows auditing standards and guidelines is unlikely to be found negligent and to pay damages as a consequence of fraud or error not being discovered by him.

Audit risk can be either normal or higher than normal.

Posted Date: 12/3/2012 5:47:12 AM | Location : United States

Related Discussions:- Audit risk, Assignment Help, Ask Question on Audit risk, Get Answer, Expert's Help, Audit risk Discussions

Write discussion on Audit risk
Your posts are moderated
Related Questions
Explain the independence between the auditor and the client on financial statement audit engagements

advantage and disadvantage of joint auditor?

Accounting Requirements - IAS 40 Investment Properties IAS 40 prescribes the accounting treatment about investment property and related disclosure necessities.  Investment

Auditors Responsibilities with regard to related parties ISA 550 Related Parties states which the auditor should perform audit process designed to find sufficient suitable

Auditors Procedures - Disclosure and Presentation 1) Ascertain that what steps the client uses to identify suppliers, selling on terms that reserve title by enquiry of those c

Furniture, Fixtures and Disposal of Non-Current Assets Furniture, fixtures and fittings The only matter here to note is the depreciation of fittings and fixtures.  Since

Ask quesThe following situations involve a possible violation of the MIA ByLaws (on professional ethics, conduct and practice). For each situation, (1) decide whether or not the Co

What techniques used during an audit? Ans)  ? Be professional at all times. Avoid being judgmental. ? Follow safety procedures, clean room procedures, and all other needed pr

Firm valuation refers to the total value of a firm in the capital market. It is the stock price of a firm times its outstanding shares. Total value of a firm is also called market