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  • Audit Risk Components

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    Hazem El Sayed
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    The document discusses the components of audit risk. It acknowledges that auditors may not detect material misstatements due to inherent risks in the engagement or weaknesses in the client's internal controls. It also notes that inherent risk is affected by factors within the client's control, while control risk and detection risk depend on the effectiveness of the auditor's planning, choice of procedures, and timing of tests. The components of audit risk can increase or decrease depending on the client's industry, financial performance, management oversight, and the auditor's testing strategies.

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    The document discusses the components of audit risk. It acknowledges that auditors may not detect material misstatements due to inherent risks in the engagement or weaknesses in the client's internal controls. It also notes that inherent risk is affected by factors within the client's control, while control risk and detection risk depend on the effectiveness of the auditor's planning, choice of procedures, and timing of tests. The components of audit risk can increase or decrease depending on the client's industry, financial performance, management oversight, and the auditor's testing strategies.

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    © All Rights Reserved
    Download as RTF, PDF, TXT or read online from Scribd
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    6 views1 page

    Audit Risk Components

    Uploaded by

    Hazem El Sayed
    The document discusses the components of audit risk. It acknowledges that auditors may not detect material misstatements due to inherent risks in the engagement or weaknesses in the client's internal controls. It also notes that inherent risk is affected by factors within the client's control, while control risk and detection risk depend on the effectiveness of the auditor's planning, choice of procedures, and timing of tests. The components of audit risk can increase or decrease depending on the client's industry, financial performance, management oversight, and the auditor's testing strategies.

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    © All Rights Reserved
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    of 1

    Audit Risk (continued)

    OR acknowledges that auditor may not detect material misstatement


    Auditor may not properly plan audit procedures
     OR is within control of auditor
    1

    Focus on
    Engagement Planning - Module 1 18

    Components of Audit Risk


    Decreases risk
    Increases risk

    Inherent risk Declining industry More profitable than industry average


    Lack of working capital Low management turnover
    High rate of
    Control risk Ineffective internal Effective internal controls
    controls
    Weak management Strong management oversight
    Detection risk Decrease substantive Increase substantive testing
    testing
    Perform tests early in Select more effective tests
    Perform tests near year-end

    Focus on
    19
    Engagement Planning - Module 1

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