Question

What types of activities increase or decrease accountant/auditor risks?

Answer 1

The Audit risk is product of Inherent * Control * Detection Risk. The Inherent and Control Risk is not in control of auditor. If IR*CR ie Risk of Material Misstatements is high the auditor try to minimise the audit risk by minimising the detection risk.

Activities Increase auditors risk

1.huge purchases are made in cash. The Nature of business for example A business where ( In India purchase of raw material from farmers) no fix purchase price.

2. Management is not providing information intentionally or unintentionally ie When asking for Vouchers and Invoices the management denied to provide it by stating that Documents are destroyed by fire occurred in premises.

3. The Internal parties are involved in embezzlement or fraud.

4. External parties are not interested in providing information.

5. The Inherent limitation of audit.

• ie Time constraint- The related audit requires so much time that auditor may be unable to give an assignment.

• Legal - Some legal provisions require the confidentiality so it’s not possible for auditor to get all the information needed.

6. No Control procedures implemented by auditee Or Controls are inadequate or Not working properly.

7. No Discussion with previous auditor, Not considering his remarks and opinions.

8. Did not understand the nature of business-industry and it’s environment

9. Having audit assignments more than resources ie time, team members.

10. Less numbers of surprise checks.

11. Conflicts between management and auditor upon scope and conditions of audit engagement.

12. Auditor ‘s allowable detection risk

The activites decreases auditor risk level is relatively high.

1. The substantive procedure applied by auditor.

2. Properly planned audit .

3. Adequate level of audit materiality.

4.Proper division of audit work among audit team.

5. The Understandings of audit engagement scope and conditions by auditor and management are same.

6. Expert Report are considered wherever required.

7. Test Checks regularly

8. surprise checks

9. Cut- Off procedures are applied on period end transaction.

10. Considering previous auditors opinions and remarks. Discussion with previous auditor.

11. Understanding the business and it’s environment.

12. Auditors efforts for maintaining lower level of detection risk ie applying sufficient audit/substantive procedure.