Aut13 Week 5 - Audit risk assessment.pdfVIP

Lecture 5 Audit Risk Assessment 1 Objectives ? Appreciate the importance of audit risk assessment and why it is linked to financial statement assertions ? Explain the importance of business risks in audit planning ? Describe the procedures performed by an auditor to assess risk ? Appreciate the importance of internal control to an entity and to its independent auditors ? Indicate the procedures for obtaining and documenting an understanding of the entity’s internal control ? Explain why and how a preliminary assessment of control risk is made ? Explain the importance of the concept of audit risk and its three components Assertions ? What is an assertion? – From the dictionary “a positive statement or declaration” – A statement about what you think is true ? From an accounting and auditing perspective – When management prepare the financial statements, they are stating what they think is true – Auditor’s job is to test this – but how? ? We use Financial Statement Assertions as characteristics of truth 3 Financial statement assertions ? Existence or occurrence – Assets or liabilities of the entity exist at a given date and whether recorded transactions or events have occurred during the period ? Completeness – Transactions, events and accounts that should be presented in the financial statement are included ? Cut-off – All transactions, events and accounts have been recorded in the correct period Financial statement assertions ? Rights and obligations – Assets represent rights of the entity and liabilities are the obligations of the entity at a given date ? Valuation and allocation – Asset, liability, components have been included in the financial statements at the appropriate amounts ? Accuracy – Transactions have been appropriately recorded in the proper accounts Managements financial statement assertions ? Presentation and disclosure – Particular components of the financial statements are properly