It is important for the auditor not to completely avoid the risk, since this is impossible in principle, but, having previously seen the risk, give it a fairly correct assessment. After all, a proper assessment of the magnitude of the possible audit risk can make it possible to ensure that the necessary procedures are carried out in such a volume, the result of which will allow the specialist to make a judgment that most fully and objectively reflects the state of affairs at the enterprise.
Instructions
Step 1
Audit risk is the probability that the financial or accounting statements of an entity may contain material undetected misstatements after confirmation of its recognition, or the reliability of the fact that it contains any material misstatements when, in fact, these misstatements do not exist in the financial statements.
Step 2
Audit risk includes: on-farm risk, risk of non-detection and risk of controls.
Step 3
Intra-business risk is the probability that all balance sheet data or individual business transactions do not correspond to reality, because they contain inaccurate information that distorts financial statements, as well as balance sheet items.
Step 4
Control risk is the probability that inaccurate information has not been identified or warned by the internal control system at the required time.
Step 5
The risk of non-detection is the probability that the audit procedures used by the auditor in the course of the audit will not be able to detect real violations that are of a significant nature in aggregate or individually.
Step 6
Thus, the size of the audit risk is calculated using the following formula: on-farm risk multiplied by the risk of controls and multiplied by the risk of non-detection.
Step 7
The risk assessment of controls can be based on testing. In general, the reliability of the control system within the firm should be higher than the on-farm risk itself, because the control system is aimed only at detecting shortcomings that exist in the accounting system.
Step 8
In this case, the magnitude of the risk of non-detection, as a rule, depends on the risk assessments of controls and on-farm risk.
