Question 4 Audit risk represents the risk that a)Auditors will issue an adverse audit report, when...

Question 4

Audit risk represents the risk that

		a)Auditors will issue an adverse audit report, when in fact, they should have issued an unqualified opinion

		b)Auditors will give an opinion that the financial statements are not fairly stated, when in fact, they were fairly stated
		c)Auditors will give an opinion that the financial statements are fairly stated, when in fact, they were materially misstated

Solutions

Expert Solution

In my view audit risk is when an auditor gives his opinion as Financial statements are fairly stated when there is materially misstated.
Auditors should be able to find out the errors/Frauds , else the financials will prove to be wrong and issues occur in clients control systems.
There is a concept involved in risks"acceptable level of audit risks", this is what the auditor determines that it is acceptable for the specific company that is audited
When the lower level of risk , higher the accuracy
More audited financials are used by external people, they rely on it , hence there should not be any miss during audit

Audit Risk Formula

DR= AR/IR*CR

DR- Detection risk

AR-Audit Risk

IR- Inherent risk

CR- Control risk

Detection risk: Auditors will not detect a material misstatement that exist

Control risk: This is client system of internal control will fail to detect a error

Inherent risk : Risk of an assertion being a material misstatement

ekkarill92 answered 6 months ago

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