Q3 - Significant Events Impact on Audit Risk components

Expert Solution

Audit risk is the risk that auditor gives an inappropriate opinion when the financial statement is materially misstated.

There are three components of Audit Risk explained below:

1) Inherent Risk : It is susceptibility of account balance and class of transaction when there is not internal control. simply it is risk of system of management.

2) Control Risk : It means management or those charged with governance are failing to prevent or detect risk on timely basis on internal control system. simply it is risk of Internal Control system of management.

3) Audit Risk : It is risk when auditors fails to detect the misstatement that is materially misstated. It is risk of sunstantive procedure adopted by auditor.

Inherent Risk and Control risk together is called Risk of Materially Misstated.

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

Do give a thumbs up if you find this helpful.

ekkarill92 answered 2 years ago

What is audit risk? What is the Audit Risk Model? What are the components of audit...

What is audit risk? What is the Audit Risk Model? What are the components of audit risk and how do these relate to each other? How does materiality and the audit approach interact with the Audit Risk Model?

Describe the relationship between the components of audit risk and audit evidence.

Discuss the impact of control risk assessment on an audit of the financial statements.

1. What is the audit risk model? 2. Identify and explain the 3 basic components of...

1. What is the audit risk model? 2. Identify and explain the 3 basic components of audit risks in the audit risk model. Please post 1 page.

Audit Risk = (Inherent Risk) * (Control Risk) * (Detection Risk) We want audit risk to...

Audit Risk = (Inherent Risk) * (Control Risk) * (Detection Risk) We want audit risk to be no greater than 5%. We assess Inherent Risk as 60% and Control Risk at 20%. So Detection Risk must be no greater than ……? Auditors report to the Audit Committee. What are the qualifications to serve on the Audit Committee?

Audit risk is a function of inherent risk, control risk and detection risk. Explain Audit risk....

Audit risk is a function of inherent risk, control risk and detection risk. Explain Audit risk. Describe the relationships between all risks and their components?

1-5 The following five questions relate independent events. Using the audit risk model as a guide,...

1-5 The following five questions relate independent events. Using the audit risk model as a guide, determine the effect the event has on risk or evidence collected. 1) The client’s management materially increased contractual debt. The effect this has on control risk is A) decrease B) no effect C) cannot be determine D) increase 2) The account balance increased materially from the preceding year without apparent reason. The effect this has is to A) increase inherent risk ...

Discuss the consequences of Wells Fargo risk events making reference to its impact on stakeholders including...

Discuss the consequences of Wells Fargo risk events making reference to its impact on stakeholders including employees and shareholders, other financial institutions such as banks and the auditors of the company. in 500 words

Q3. Explain the importance of observing physical inventory during an audit.

Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial...

Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. The auditor considers audit risk when planning and performing an examination of financial statements in accordance with auditing standards. In connection with this, the auditor considers the relevant assertion level because this directly assists the auditor to plan the appropriate audit procedures for those transactions, accounts or disclosures. The auditor uses the audit risk model as a framework for assessing...

Question