Audit risk - Elaborate briefly.

Tuesday, August 23, 2011

Audit risk
It refers to the probability that the audited financial statements contain a significant error or misstatement.

Audit risk arises in a situation when the auditors are led to give an erroneous audit opinion by certain inherent and some forced circumstances.

Types of Audit Risk
There are three types of audit risks as follows:

  1. Inherent Risk
    It is the probability that aspects examined are materially misstated before impact of control systems or testing.

    It is the susceptibility of an accounting system or account balance or class of transactions to misstatement that could be material, either individually or when considered with other misstatements in other balances or classes, assuming there were no internal controls.
  2. Control RiskIt is the probability that the existing control systems are not enough to contain material misstatements and such misstatements have a high chance of slipping through.

    It is the risk that a misstatement that has occurred in an account balance or class of transactions and was material either individually or when aggregated with other misstatements in other balances or classes was not prevented or detected and corrected on a timely basis by the existing accounting or internal control systems.
  3. Detection Risk
    It is the probability that certain material misstatements would be able to slip through substantive testing.

    It is the risk that an auditor’s extensive and substantive procedures would not be able to detect a misstatement that exists in an account balance or class of transactions that could be material individually or when aggregated with misstatements in other balances or classes.

0 comments:

ChartAcc Logo by Vikrmn CA Vikram Verma Vikrmn.com
CHARTACC
Share space for Chartered Accountants
and Financial Professionals

Novel by a Chartered Accountant

10 Alone

A novel by Vikrmn (CA Vikram Verma)

a saga of 10 friends.. 10 Dreams.. 10 hearts.. 10 Minds..

It's a story of 10 Chartered Accountants.. who celebrate personal and professional life.. all together.. Ten Together..

www.10Alone.com | www.Vikrmn.com