MGAD10H3 Chapter Notes - Chapter 4: Performance Indicator, Audit Risk, Financial Statement

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Published on 29 Jun 2013
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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
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Document Summary

Learning objectives: define audit risk, describe the concept of materiality, describe how an auditor determines the audit strategy, outline how clients measure performance, 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. 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: 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.

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