Question

Netflix audit planning such as setting up of materiality level ,assessment of inherent risk, control risk and detection risk

Answer 1

Setting up of materiality level

In the financial statements there are certain facts that are can be misstated and this is the duty of the auditor to keep a close eye on these issues. Sometimes a revenue has been recognized but actually that was a deferred revenue.

So to audit the statements the auditor has to decide the materiality level, he has to consider that what facts are to be considered for matching with the documents and what facts can be left unchecked.

But here the materiality level depends upon the size of the organization and the level of revenue a company holds.

Assessment of inherent risk

Assessment of inherit risk means to access the level of risk that exists the type of industry to which the company belongs.

If a company is working in a particular area where the risks are much higher in financial statements then the auditor will take high care.

So this is obvious that the auditor do an assessment of the inherited risk.

Control risk

In every organization there has been a system where the inherited risk and errors are determined for checking.

There is always a control system that detects and make efforts to correct the errors. So this is control risk.

The auditor always access the control risk system of the company

Detection risk

In the control system the efforts are made to detect the errors and correct the errors before the auditor highlights them in the audit plan.

So there is always a chance that not all such errors that are made in daily course of business are highlighted and corrected

This is called detection risk.