In: Accounting
Ajax Inc. is a public company ad a new client of Hawtorne Partners, a medium-sized audit firm. Jeffrey Rush is the engagement partner on the audit and has asked the members of the audit team to begin the process of gaining an understanding of the client, in accordance with AS 2110. One audit manager leads the group investigating the industry and economic factors, and another helps Jeffrey consider issues at the entity level. Jeffrey will hold discussions with members of the audit committee and will discuss a wide range of issues. He has a meetig arranged for next week with the four members of the audit committee, including the chair of te committee, Stella South, who like the other members of the audit committee, is an independent director.
Required
a. Make a list of the main factors that will be considered by each audit manager's group.
b. Based on the above information, can you conlude that Ajax Inc. complies with Section 301 of the Sarbabes-Oxley Act regardig its audit committee? Explain.
2 reasons risk management is so critical to auditors
because its fundamental to client acceptance and resource allocation
client acceptance
auditors will only accepted clients that have managed their risks well unless the client is willing to pay more money in order to make up for their poor risk management
Resource allocation
auditors perform more tests that are related to aspects of the highest risk exposure to the fair presentation of the financial statements
RMM
control risk times inherent risk
inherent risk
risk of a material misstatement assuming so internal controls
control risk
it risk of the internal controls failing to detect a material misstatement
detection risk
the risk of the audit procedure failing to detect a material misstatement
audit risk
audit risk is the risk that the auditor expresses a inappropriate opinion
the auditor determines what level of AR is acceptable for a given client based on these 4 things
1. distribution of ownership
2. business risk to audit firm
3. client size
4.litigation environment
What is appropriate audit risk?
There is trade-off: maximum such that opinion can be issued without much risk that fin stmts are materially misstated