AFM202 Lecture Notes - Lecture 3: Measurement Uncertainty, Internal Control, Audit Risk

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Internal controls fail to detect or correct the misstatement: control risk, audit procedures fail to detect the misstatement, detection risk. Conditions and events that may indicate rmm: operation subject to a high degree of complex regulations. Incentives to engage in fraudulent financial reporting: competition. Ipo: on the road to bankruptcy, new business lines, expanding to new locations, acquisitions, reorganizations, other unusual events. Significant related party transactions: research on the client, past transactions. Lack of personnel with appropriate accounting skills: turnover of key executives, deficiencies in internal control, prevent and detect errors, changes in it environment, history of errors/significant adjustments to financial statements, accounting measurements that involve complex processes. Litigation: measurement uncertainty, material misstatement is higher on an initial engagement. Materiality levels for audit planning: materiality is the largest amount of uncorrected misstatement that might exist in financial statements, still fairly present the company"s financial position and results operations.

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