BU477 Lecture Notes - Lecture 12: Decision Aids, High Tech, Financial Statement
Document Summary
Bu477- week 6, lecture 2: responding to risks of material misstatement due to fraud, when the auditor identifies risks of material misstatements due to fraud, cas. Ir * cr: where dr = detection risk, aar = acceptable audit risk, ir = inherent risk, and. Audit risk (ar)= ir * cr * dr: keep audit risk as lo(cid:449) as possi(cid:271)le: (cid:373)ake sure (cid:449)e do that espe(cid:272)iall(cid:455) if there"s a lot of people relying on those statements. Inherent risk: the risk of material misstatement is a function of: Identification of related parties: do we know of all of them: complex or nonroutine transactions- company acquiring a business (consolidations are not simple, likelihood of errors increases, complex financial instruments, complex revenue transactions. Initial versus repeat engagement: first ti(cid:373)e (cid:455)ou"re doi(cid:374)g the auditing, or the client has never (cid:271)ee(cid:374) audited (cid:271)efore, (cid:455)ou do(cid:374)"t u(cid:374)dersta(cid:374)d the (cid:271)usi(cid:374)ess a(cid:374)d its high-risk areas, steps: Identify risk factors: why/how do these risk factors impact, scenarios.
