AYB301 Lecture Notes - Lecture 3: Trend Analysis, Inventory Turnover, Audit Risk
Document Summary
Lecture 3 audit planning and understanding business risk. Engagement risk: risk is high whenever there is increased likelihood that: The auditor is associated with a failed client. Financial statements contain material misstatement that the auditor fails to find. Increase the likelihood that the auditor will be sued. Client acceptance or retention decision: a decision affected by a range of factors. The quality of the client"s corporate governance. The key factors an auditor will analyse include: Independence and competence of the audit committee and board: management integrity, quality of erm and controls, regulatory and reporting requirements, participation of key stakeholders, existence of related party transactions. A new auditor should initiate discussions with the predecessor to discuss the reasons for the change in auditors: because of the confidentiality rule, the successor must first obtain client permission to talk with predecessor. When deciding if the company wants to take on this risk you must consider all factors.
