how to assess risk
- understanding the entity
- performing analytical review
7 types of risk
- audit risk
- material misstatement
- inherent risk
- control risk
- detection risk
- sampling risk
- non sampling risk
audit risk
risk an auditor expresses inappropriate audit opinion
includes both risk of material misstatement and detection risk
risk of material misstatement
risk that FS are materially misstated before audit starts
inherent risk
susceptibility of material misstatement in FS, assuming there were no internal controls
control risk
risk that MM not prevented, detected or corrected by internal controls
detection risk
risk that audit foes not detect MM, comprised of sampling and NS risk
sampling risk
risk that conclusion drawn from results of sample aren’t consistent with conclusion that would’ve been made had al items been tested
non sampling risk
risk of drawing wrong conclusion for other reasons
5 reasons to perform risk assessment
- identify risks early
- plan procedures to address risky areas
- carry out efficient audit
- reduce risk of giving incorrect opinion
- reduce risk of reputation damage or fines
4 risk assessment procedures
- enquiries with management and internal audit function
- analytical procedures
- observations of controls
- inspection of strategic documents
