Hoang Thi Thanh Ha – 13200154
Auditing Assignment 2:
1.What are the factors to consider Inherent Risk?
Inherent risk is a measure of the auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control. Factors affecting assessment of inherent risk include:
Nature of the client's business :
Makeup of the population
Audit experience :
Results of previous audits
Initial vs. repeat engagement
Judgment required to correctly record transactions
Factors related to fraudulent financial reporting
Factors related to misappropriation of assets
2. What are the differences between IR, CR, and DR?
Inherent risk refers to the likelihood of material misstatement of an assertion, assuming no related internal control. This risk differs by account and assertion. For example, cash is more susceptible to theft than assets such as fixed assets. This risk is assessed using various analytical techniques, available information on the company and its industry, as well as by using overall auditing knowledge.
Control risk is the likelihood that a material misstatement will not be prevented or detected on a timely basis by internal control. This risk is assessed using the results of tests of controls.
Detection risk is the risk that an auditor's procedures lead to an improper conclusion that no material misstatement exists in an assertion when in fact such a misstatement does exist. The auditor's substantive procedures are primarily relied upon to restrict detection risk.
Inherent risk and control risk differ from detection risk in that they exist independently of the audit, whereas detection risk relates to the effectiveness of the auditor's procedures and how well the auditor apply them. The level of detection risk that auditor can accept varies inversely with the level of inherent and control risk. The...
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