Textbook Notes (362,734)
Canada (158,032)
MGAD10H3 (23)
Kevin Ha (16)
Chapter 4

Chapter 4 _ Audit Planning II.docx

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University of Toronto Scarborough
Financial Accounting
Kevin Ha

Chapter 4 – Audit Planning II Learning objectives 1. Define audit risk 2. Describe the concept of materiality 3. Describe how an auditor determines the audit strategy 4. Outline how clients measure performance 5. Describe how an auditor uses analytical procedures when planning an audit CAS 200 – objectives of the independent auditor and the conduct of an audit in accordance to CAS CAS 300 – planning an audit of financial statements CAS 315 -identifying and assessing the risks of material misstatement through understanding the entity and its environment CAS 320 – materiality in planning and performing an audit CAS 520 – analytical procedures 4.1 Audit risk  Audit risk – the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated  Inherent risk – the susceptibility of the financial statements to a material misstatement without considering internal controls o Done at the financial statement level, considering industry, trends, past experiences  Assertion – statement made by management regarding the recognition, measurement, presentation, and disclosure of items included in the financial statements  Significant risk – an identified and assessed risk of material misstatement that, in the auditor’s judgement, requires special audit consideration o Considerations: fraud, significant economic relevance, complex transactions, related party, measurement, significant transactions  Control risk – the risk that a client’s system of internal controls will not prevent or detect a material misstatement 4.1.1 The audit risk model and its components  Financial statement level – the risk of material misstatement refers to risks that affect the financial statements as a whole  Assertion level – the risk of material misstatement refers to risks that affect classes of transactions used to prepare the financial statements  Detection risk – the risk that the auditor’s testing procedures will not be effective in detecting a material misstatement AR = IR X CR X DR  Audit risk = inherent risk, control risk, detection risk  Tends to be less than 5% 4.2 Materiality  Materiality – information that impacts the deci
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