Page 15 - Demo

جميع الحقوق محفوظة ـ اإلعتداء عىل حق املؤلف 15 بالنسخ أو الطباعة يعرض فاعله للمسائلة القانونية2) Step 2: Understand Internal Control and Assess Control riskThe auditor should assess control risk by identifying internal controls and evaluating their effectiveness. Through, assessing the ability of the client’s internal controls to generate reliable financial information and safeguard assets and recordsIf internal Controls are effective, planned assessed control risk can be reduced and the amount of audit evidence to be accumulated can be significantly less than when internal controls are not adequate.3) Step 3: Assess risk of Material Misstatement (RMM)The auditor uses the understanding of the client’s industry and business strategies, as well as the effectiveness of controls, to assess the risk of misstatements in the financial statements. This assessment will then impact the audit plan and the nature, timing, and extent of audit procedures.Ex: if the client is expanding sales by taking on new customers with poor credit ratings, the auditor will assess a higher risk of misstatement for net realizable value of accounts receivable and plan to expand testing in this area.What is the Audit risk Model?The auditor determines the scope, extent and timing of Substantive tests depending on level of audit risk assessed. Audit Risk A- Definition:  Audit risk is the probability that the auditor will issue an unqualified (clean) opinion on financial statements that are, in fact, materially misstated whether due to: A. Errors: unintentional mistakes. B. Fraud: intentional mistakes The auditor’s objective is to achieve a level of audit risk that is acceptable to the auditor. Acceptable audit risk (AR) is estimated based on the value of the components of the audit risk model.