auditing101

Risk that affects the operations and potential outcomes of organizational activities

Risk that the auditor may provide an unqualified opinion on financial statements that are materially misstated

1% of total assets or revenue 5% of net income

Recognizes that an error is more likely to occur in some areas that in others

How can the auditor control audit risk?

A measure of the risk that audit evidence for a segment will fail to detect misstatements exceeding a tolerable amount, should suck a misstatements exist; PDR = AAR / (IR x IC)

AUDIT RISK MODEL

The maximum amount by which the auditor believes that the statements could be misstated and still not affect the decisions of reasonable users; used in audit planning call PRELIMINARY JUDGMENT

Auditing standards define ________ as the magnitude of misstatements that individually, or when aggregated with other misstatements, could reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.

The materiality allocated to any given account balance; used in audit planning.