Sunday Dato: WH Ock 2020 —— LESSIonaa L OBTAINING REASONABLE ASSURANCE a WE sla covey. Audit visk ay matenarity. AUDIT RISK: The visk dnt the audiwr expresses an mappreprare audit opinion wien the froandal statement are materially misstated. oc, clean | Unqualified audit opinion (india _5 IN order wWacquire reasonalole assurance 24 materiality dine auditor needs to cavegully think about the H]PENEET velared 10 _O : To management 's Fvandal statement assev Bovis - — (doesn’s rnean all financial informasio” lout all associate information whic WOH Ve fou Financial seacemens ) Lysuen as markenng Wf Accescrnen’e of Ane strengn OF A velewont to , ASLOners » oration, Ov peveeprions OF Onsho) your client Scanned with CamScanner\ Dato \ } | MATERIALITY: ety Magnitude op aaksrougiabor hak roayes U! probate fat we dadgment OF a Teasonavle person relying on tine information woud ive been changed mpiuenced by. f the misstatement. EXAMAE-OF Olt ComPANY OR EUIDENCE > Suttability of ARIMECE: Checknos ony Gnanaal Aa but von Financial dak cig well such as opinions Scanned with CamScanner- — | 4 bate. LESSON: 3.4 Pave | , : | EVIDENCE —~» NU €. Of tests we x jt os S Nate Extent’ Tin Example OF USA elections: explains alarge sampie from bias sources 4 theiv downealt . Scanned with CamScanner= _What-is Material? A material difference ls a dit¢ererce nae Could atbece ne Aecisions of ine Yeasonable decision maker Using -__ the financial statements. Material to whom? Me primary users of fmancial seatements ave Wnvestors and cveditcos (Yequiaters suppliers 4 custorners ) GQ Qualitative reasonin Assess this as decision makers rather athan as an auditor , ‘pov ouroassess Maberiality Pudlitors néeAto seep inv we o i shoes"tine degreé towich a =~ Pr posed audit adjusument is This is a matenat hara job a0 Ao. Lope ney eare aloout $1207 & oF diveckinn ? ——> more Wyorvane. Scanned with CamScanneral i = Davee I For Example — > Intenrional misstakements ave Always Macenat Date Ly Maybe a frandwity MAUoUS Stakemenr, G Equity compensation Cxaggerate performance . L ag armani pularion oF MUMVBES + + Auditoys need whe progessionally Skeptical. . Avasion PEmanagement is indicabve OF miss takament - 1 Ik is narra toAninw tite’ tne vovestors Given —> Purdi tors are independenti-e . tney cannot invese intne anditee company. Since you can’e inves, les navaer Ap Figuve Wwestor's perspective - ° Have a highevanvehad of mMarevialcsy AS vompared to investor. / —— Dowel lou Aiveeentar MoeVaredreasoniingmac (goals + paver oF auditor.) ; tbr example: reasoning J Z Wen Looking for cars, focused on pleasing Nnouses -clivecrional management Wnerefre motivated veaconing Needabiggenmisstarement 40 consider tk material: Scanned with CamScannerDato vos a ~ [LESSON 3:3 Risk Assessmen Rave ee - Risk A “__cenival_ aviving facet o¢an audit - + How You govern tne collection oF evidence - + the assignment oF personel te the Andie engagemenr. Auditor heeds to ve alle te assess WSK Orone CANNOk allocate vesouvces propery. eae 1 Quality Rick Assess ment. 1 Giveninelv goals, clients veactor fai\ toveackto lousiness visks - + High quality audivev will de Acep inte the andivee five: ese veaciors (ov guilures) multi -dimensional ways. aggece ciientsin L5Progizatoiviny, Uauidity +marke tability - ly business Employee morale lrecentions stakencide’ >ViSk Scanned with CamScanner+ igh quay risk assosor—y care ful_as an aundkikor 24 ev loping WAY You Wisnk You will olosewe within A given sek of Manual scacements « WALENAL MisstaLEMENr—> QSENEVNIOMAING er ERA Zero —— Tew Risk | aA Al Assessmerr i 0 es Wareness nqaterial misgtazemenr present viack of anarens High Risk Aiscordane’ Risk assessment is primanly AMEN by the Begtee oF) i Expectations seemFrom aplace of AWNaVENESosEs rowene GAvoiousiy formed: | Aboot Scanned with CamScannerPart \\\ i) Auait Rick ii) Client Business Risk itive corrcation iit) Auditor's Business Risk CliemtBusiiness- Risk a Bl lala We vik tat the chek Will expenence advevse ourcprre | AS a yesuit of economic conaitions ,even's , UMM SE ances or management acdorMaCtiON - i-e-Vidloility of chent . pi s Busi Ri MWe isk thartne andic fumvill be exposed to \oss from events arising in connection Witin (ne Finacial Starements, Eg. Ligation, penaities, reputational joss, lack oe POF aboiliry. G Soceer mond Cup frandib Avery allegations: Lssue anditing company as weit . Scanned with CamScanner 4 ——Date: ENGAGEMENT MODEL _~ 3 major classes oO visk . — > subsumes the ongina\ anditvick model. a Scanned with CamScanner(Pca08 s-z) Rg i. “2 The Wisk that the financial scaeements are _Matenally misseaced Porto audie. + Outside 8Fthe avditoris el, ligker = Rwy L + LORE IRSK Mensk thata “the Vise that conmols 1 é Matenal sta tement PY eSernt WAU noe prevents i -G could Occur, before. ov detect ana cowe ce, the considevation Amatevial misstatement ok OF any internal —> NDVI Conscious — f. Conponis - proactive with Mit gation CF IR — Budivov nas to b bindushies thac have very complex management's he fs F to unpackKinis _sAuditor—oosenve manage - Mentis mitigation. at. Scanned with CamScanner+ Detecrionvate veiates to Audit Risk (cave cSec.@ ) 2 Me vsk_ that the AnAUOA On audit procedures Per foamed loy an aucdioe will foul Ww detect a Mateértal misstatement: Ne * Unlike IRECR, Ee ig controllable by tne QUadEr , — she planned level of OR is inversely velated to theplanned level o¢ evidence needed . + Distectim ciske need +0 be lower — needs tobe dAnven down whenvisk of material misstatement is higher. Scanned with CamScannerDato ER pace. nat an auditor’, andik procedure wright “To lays Fail + acteck material Misstakements nak are ere SS 4. In approgiiage audit _| procedures y appropriate procedures but fail to Ackeck a samplings misstakements Ov mis were Nutnovioave 1 audit results © - ‘stanaards’ : v SS 2. buditor!s toncusion Could [Nen camping risk You ao change if ardic procedures [Sudgerneniiee averting were applied tome vignr-Howevey, ennre popularin . \y Me sample you chose alraos: alveays was unvepresentative. tne reason, & protessional wdagrnent visk Lb gailed rodwe oleep. Ly Failure toacess prior isk IR ov cR a v Audit model = Rx cRADR . TT Scanned with CamScannerv Relave those vickto Wnarcould _ 20 won atthe class ne rmonsattion, revenue balance, ora\scosure evels ‘ Do we ewenwant to audit tis cornpany? + Expevtise vequve d 40 access and audive « Investors pers pectives tO we appiied. ___ Asséss RMM-7 now low cletectionvate yin go? > CBR Acceptable Audit RiKky Second round of sock to wake equihy secieemment Wok Weker= cxampie - a Scanned with CamScanner 4) —e — saa! amnedl a o¢ Audie WK Such = waion can be Issued 01 Hine Financial Skacement. COREABR +Materialiny —yNecepravie) Ane ns OF MAakENAl misstatement (1Rx CR) Date... an oP! ii) Assess whi) Use oe Audie ASK MoAde\ Lana equation) iv sowe forthe appropiate level 0E planna Aeection visk. DRENARI —@Ccep Eade) L WKeel_—ypacessedty ( planned) hudivove use Hnis level of Ackection visk to Aesiqn audit proceduvesanar will reduce audit visk to an accepcala\y low! level. 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