Chapter 3
Assessing Audit Risk
IN THIS CHAPTER
Identifying the three types of risk related to audits
Brushing up on risk assessment procedures
Figuring out the difference between errors and fraud
Acting on your audit risk results
When you audit a company, your main goal is to provide assurance to the users of the company’s financial statements that those documents are free of material misstatement. In other words, the financial statements don’t contain any serious or substantial misstatement that may mislead readers on the financial condition of the business. To do this, you use the audit risk model — which consists of inherent, control, and detection risk — to help you determine your auditing procedures for accounts or transactions shown on your client’s financial statements.
This chapter introduces you to two important auditing concepts: audit risk and materiality. Audit risk is the chance that you won’t catch a major mistake in the financial statements. Materiality refers to whether the mistakes you find are classified as significant or insignificant — in other words, as material ...
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