Audit Risk Alert, 2nd Edition

How This Alert Helps You

.01 This alert helps you plan and perform your audits and can be used by an entity’s internal management to identify issues significant to the industry. It also provides information to assist you in achieving a more robust understanding of the business, economic, and regulatory environments in which your clients operate. This alert is an important tool to help you identify the risks that may result in the material misstatement of financial statements, including significant risks requiring special audit consideration. For developing issues that may have a significant impact in the near future, the "On the Horizon" section provides information on these topics. Refer to the full text of accounting and auditing pronouncements as well as the full text of any rules or publications that are discussed in this alert.

.02 It is essential that the auditor understand the meaning of audit risk and the interaction of audit risk with the objective of obtaining sufficient appropriate audit evidence. Auditors obtain sufficient appropriate audit evidence on which to base their opinion by performing the following:

•     Risk assessment procedures

•     Further audit procedures that comprise the following:

—     Tests of controls, when required by generally accepted auditing standards (GAAS) or when the auditor has chosen to do so

—     Substantive procedures that include tests of details and substantive analytical procedures

.03 The auditor should develop an audit plan ...