Measuring Audit Risks

Overview

In order not to perform an excessive number of audit procedures (over audit) auditors must perform procedures in order to determine in what areas are there weak internal controls that could result in a risk that the financial statements would be materially misstated and not be detected.  SAS No. 122, AU 300 – 499, Measuring Audit Risk provides guidance as well as required procedures that must be performed in every audit in order to determine the risk of material misstatement.  No longer can the auditor state that they assess the risk of material misstatement at maximum without having a basis for making such assessment.  As a result, the standards now require that the auditor make such an assessment of a material misstatement of the financial statement on every audit in order to have a basis for such assessment.  This program is an overview of the statement documentation requirements in assessing such a risk.

Prerequisites

None

Objectives

• Plan the audit objective
• Determine the scope, timing and direction of the audit
• Understand the importance of SAS No. 122, AU 315, Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement
• Evaluate the Tone At the Top
• Recognize how the Tone At the Top relates to audit risk
• Distinguish between a significant risk and a material risk
• Apply the concept illustrated by The Big Monkey Theory
• Documenting the process of determining audit risks

Highlights

• The planning process – When it starts and when it ends
• Determining the audit objectives
• The importance of the nature, timing and extent of the audit process
• The importance of professional skepticism
• The preliminary engagement activities
• Documentation of audit risk
• Determining materiality