Higher normal risk, Auditing

Higher  normal risk

Several audit assignments involve high audit risk and usually in any client there will always be at least one high risk area.  Indications that an audit has an element of higher than normal audit risk include:

(1) Poor management with lack of control and poor book-keeping;

(2) Liquidity problems and high gearing;

(3) The opposite of all the factors mentioned in the normal risk above;

(4) Recent changes in ownership, control or key staff;

(5) Changes in accounting policies or procedures;

(6) Future plans to seek quotation on the Nairobi Stock Exchange;

(7) Over-reliance on a few products, customers, suppliers and investments in new ventures or products;

(8) Problems inherent in the nature of the business for example difficulties in stock counting or valuation, difficulties in determining the extent of claims and provisions and cut-off problems;

(9) The existence of put upon enquiry situations, dominance by the single person and lack of involvement of directors or proprietors.  In such a situation, the auditor approaches his audit in a manner that is:

    •    Sceptical, relying on high calibre staff
    •    Collection of audit evidence in each area from a wide range of sources
    •    Taking extreme care in the preparation of audit working papers
    •    Investigating thoroughly high risk and problematic areas
    •    Exercising extreme care in drafting the audit report

In addition to normal risk and higher than normal risk discussed above, the auditor can also be exposed by sub-standard work such as:

i. His failure to recognise put upon enquiry situation
ii. His failure to draw correct inferences from audit evidence and the analytical review
iii. His use of wrong procedures in a particular situation
iv. His failure to perform necessary audit work because of time and cost consideration
v. His failure to detect errors or fraud because of poor sampling methods or the selection of inadequate sample sizes

It is essential that an audit firm should organize itself in such a way that it can minimise the risk of suffering any damage.  We can look at these measures from two points of view.  Broad measures taken by the profession as a whole and measures to be taken by the individual auditor in minimising this audit risk.

Posted Date: 12/3/2012 5:53:00 AM | Location : United States







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

Write discussion on Higher normal risk
Your posts are moderated
Related Questions
Skills and Objectivity of Expert The skills and competence of the expe rt Whether planning to require the work of an expert, so the auditor should assess the professiona

Q. Which of the following statements is not considered a disadvantage of the corporate form of organization? a. Additional taxes b. Government regulations c. Limited liability of s

Goodwill and Business Combinations - Intangible Assets Goodwill is the one of most strange of all assets since it cannot be differentiate from the business.  It cannot be sold

Assertions about disclosure Assertions about disclosure and presentation : a) Rights and Occurrence and obligations -disclosed transactions and events and other issues

Hi Dear, Could you please help me with online exam in Auditing Class !!

Develop an audit program to identify and reduce potential fraud using ACL.

Objectivity - External Auditor Report Many accounting figures are subjective and contain substantial terms of subjective judgment.  Many more business transactions have financ

What is an audit, what financial records are available and what is their individual function in completing your audit? Audit is an independent examination of financial informat

Responsibilities of the Auditor The Auditor has no duty for the prevention and recognition of fraud and error though the annual audit might act as a restraint. As explained

Question : (a) Describe the following terms: 1) Forensic Accounting; 2) Forensic Investigation; 3) Forensic Auditing. (b) Explain the basic elements to consider for