Question

1. Define AAR: Then discuss how each of the following items can affect your assessment of AAR -Be specific

1. Third Party Use of Financials
2. Possibility of Financial difficulties
3. Management Integrity
4. What was your assessment of AAR and which of these was the most important for your assessment.

AAR = Acceptable Audit Risk

Answer 1

Acceptable Audit risk is that risk that the auditor is willing to take of giving an unqualified opinion when the financial statement are materially misstated.As audit acceptable risk increases the auditor is willing to correct less evidences and therefore accept a higher detection risk.

By following ways AAR is affected;

THIRD PARTY USE OF FINANCIALS-two types of misstatement are relevant to the auditors consideration in a financial statement audit misstatement arising from financial reporting and misstatements arising from misappropriation of assets.

MANAGEMENT INTEGRITY-the auditor consideration of materiality is a matter of professional judgement and is influenced by his or her perception of the needs of a reasonable person who will rely on the financial statement.so AAR is affected by management integrity.