Week 3 - Audit Risk

Question 1

What is audit risk?

Answer 1

The risk that an auditor expresses an inappropriate opinion when the financial statements are materially misstated - saying accounts are true and fair when they are not

Question 2

What are the potential repercussions of giving wrong opinion?

Answer 2

• business makes wrong choices
• investors decisions impacted
• you could be sued

Question 3

What is the first way audit risk can be managed?

Answer 3

Increased supervision

Question 4

What is the second way audit risk can be managed?

Answer 4

Reviewing and making sure nothing is missed

Question 5

What is the third way audit risk can be managed?

Answer 5

Potentially increase sample basis to ensure conclusions still stand

Question 6

How are audit risk and business risk different?

Answer 6

Business risk is the risk the business is faces because of the type of business it is, the industry it is in, the type of transactions it carries out - what keeps the MANAGING DIRECTOR awake at night

Question 7

What is the audit risk equation

Answer 7

Audit risk = Inherent risk x Control risk x Detection risk

Question 8

Define audit risk

Answer 8

The risk of an incorrect audit opinion