Question

If internal audit resources are limited to conducting only one audit at a divisional location, should a high-risk process that was audited last year at this location be audited in lieu of a moderately risky process that was last audited four years ago? Explain.

Answer 1

Answer:

Internal audit is a procedure conducting to guarantee adequacy and proficiency of the activity , dependability of fiscal reporting, protecting of assets and consistence with laws and guidelines.

Audit risk alludes to the risk that the auditor will communicate an unseemly opinion when the fiscal statements are materially misquoted.

Audit risk have 3 segments:

• Inherent risk : Inherent risk alludes to the risk that there are no internal control for opportune prevention detection and correction of misquote.
• Control risk: It is the hazard that the mistatement of internal control can't be identified occasion however internal control exists.
• Detection risk: It is the hazard that the audit method applied by the auditor won't have the option to forestall detect and right misquote.

There is a converse connection between the detection risk and combined degree of inherent risk and control risk

High hazard or risk process prompts high control risk.

Subsequently so as to diminish the combined degree of inherent risk and control risk, the detection risk ought to be decreased. Thus high hazard process needs more audit consideration ,so as to diminish the detection risk.

Consequently, high hazard process require more audit work to decrease the general audit risk.