Wiley Practitioner's Guide to GAAS 2015: Covering all SASs, SSAEs, SSARSs, PCAOB Auditing Standards, and Interpretations

PCAOB 8 Audit Risk¹

APPLICABILITY

This section applies to audits of financial statements as part of an integrated audit or an audit of financial statements only.

DEFINITIONS OF TERMS

Audit risk. The risk that an auditor expresses an inappropriate opinion when the financial statements are materially misstated. It is a function of the risk of material misstatement and detection risk.

Control risk. The risk that a misstatement due to error or fraud that could occur in an assertion and that could be material, individually or in combination with other misstatements, will not be prevented or detected on a timely basis by internal controls. Thus, it is a function of the effectiveness of the design and operation of internal control.

Detection risk. The risk that the procedures performed by the auditor will not detect a misstatement that exists and that could be material, either individually or in combination with other misstatements.

Inherent risk. The susceptibility of an assertion to a misstatement, due to error or fraud, that could be material, individually or in combination with other misstatements, before consideration of any related controls.

OBJECTIVES OF PCAOB STANDARD 8

Public Company Accounting Oversight Board (PCAOB) Auditing Standard 8 sets the objective of conducting an audit of financial statements in a manner that reduces audit risk to an appropriately low level.

FUNDAMENTAL REQUIREMENTS

Audit Risk

To express an opinion on financial statements, an auditor must ...