The risk of material misstatement and detection risk. Only creditors, investors have the risk of major misstatements and detection risks. Other stakeholders rely on the financial statements, and the audit risk may be legally responsible for the CPA firm that performs the audit.

The auditor provides a written opinion on whether there are no material misstatements in the financial statements. The audit requires CPA firms to inquire and verify financial statements. Improper implementation of audit procedures, management of audit risks, and potential legal liabilities.

CPA firm

Large listed companies have encountered one of the Big Four accounting firms, namely PricewaterhouseCoopers, KPMG, Ernst & Young or Deloitte & Touche to perform audits. Many companies hire personnel to conduct internal audits, and external audit companies will rely on part of their internal work to complete. It was the top five before the senior year, but Antonson lost the ability to audit after justice blocked in the Enron scandal. According to a report by the Office of Government Accountability (GAO), the Big Four audited 98% of US companies, with annual revenues exceeding $1 billion. Smaller companies are more likely to hire a mid-range company, such as Grant Thornton.

The difference between risks

For example, suppose a large sports goods store needs to be audited, and a certified public accountant firm is assessing the risk of auditing store inventory. The risk of material misstatement is the risk that the financial report is seriously incorrect before the audit. In this case, the term "material" refers to the number of dollars that is sufficient to change the opinion of the readers of the financial statements, and percentages or dollars are subjective. If the sporting goods store’s inventory balance of 1 million USD is incorrectly 100,000 USD, then stakeholders reading the financial statements may think it is a material amount.

The risk detection is that the auditor's procedure does not find the risk of major misstatement. For example, an auditor needs to perform a physical count of inventory and compare the results with accounting records, and perform this work to prove the existence of inventory. If the auditor's inventory counting process is weak, the detection risk is higher

Audit risk definition

Audit risk is defined as "the risk of the auditor expressing improper audit opinions when a major misstatement of financial statements occurs. Audit risk is a function of the risk of major misstatement and detection risk. – The risk of major misstatement and detection risk.

• The risk of material misstatement is defined as "the risk of a financial statement being materially misreported before the audit. This includes two components...
• The inherent risk is "before considering any related controls, the sensitivity of a type of transaction, account balance or misstatement, which may be significant, alone or combined with other misstatement sensitivity.
• Control risk is "the risk of misstatements that may occur in assertions about a type of transaction, account balance or disclosure, and may be important information alone or combined with other misstatements, and will not be blocked or detected. Correction is based on the internal control of the entity.
• Detection risk is defined as "the risk of the auditor's process of reducing audit risk to an acceptable low level will not detect the existence of misstatements, and maybe a major asset alone or combined with other misstatements.

Audit risk issues require candidates to identify the risks of material misstatement, including inherent and controlled risks and detection risks.

Audit risk model

In any three meetings, some candidates were valuable time by describing the audit risk model and the definition of audit risk, inherent risk, control, and detection risk. The description of the audit risk model", candidates should not provide definitions of audit risk, inherent risk, control risk or detection risk, because there is no mark available

Audit risk threatens the business risk

The main area where candidates continue to lose marks is that they do not understand which audit risks are related, so it is "These are beyond the scope of the syllabus. There are no traces of commercial risks.

Business risk is defined as "the risk of an incident, incident, environment, behavior or omission, which may adversely affect the entity's ability to achieve its goals and execute strategies, or result from improper goals and strategies.

• The risk must be related to the risk in the financial statement audit and should include claims that affect the financial statement. Therefore, audit risk should be related to related claims.
• ISA 315 identifies and assesses the risk of a material misstatement by understanding the entity and its environment to determine the following assertions:
• A description of the types of transactions and events during the audit-occurrence completeness, accuracy, truncation, and classification.
• Arguments about the ending account balance-existence, integrity of rights and weapons, and valuation and distribution.
• Notes on presentation and disclosure-occurrence, rights and obligations, completeness, classification and intelligibility, and accuracy and valuation.

In addition, the risk may be related to the actual problems that the audit team may encounter, such as the presence of the company’s inventory counts on multiple websites and the existence of inventory counts, or major changes in the company’s financial department, as well as increased risks of fraud and errors

A common mistake is that the candidate identifies the relevant issue from the scenario, and then considers the risk of the company Professional Assignment Writers Online rather than the auditor to connect to the relevant assertion.