Audit

Distinguish between audit risk and engagement risk

* An audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statement are materially misstated while engagement risk is the risk that auditor is exposed to financial loss or damage to professional litigation, adverse publicity, or other events arising in connection with financial statements audited and reported on. In simple terms, audit risk is the risk that an auditor will issue an unqualified opinion on materially misstated financial statements, while engagement risk relates to the auditor's exposure to financial loss and damage to his or her professional reputation.

How do inherent risk and control risk differ from detention risk?

* Detection risk has an inverse relationship to inherent risk and control risk. The Auditor has little or no control over inherent risk and control risk. Inherent risk and control risk exist independent of the audit, meaning the levels of inherent risk and control risk are functions of the client and its environment. While detection risk is the risk that the procedures performed by the auditor will not detect a misstatement that exists that could be material. The auditor can control detection risk through scopes such as; nature, timing, and extent.

What steps should an auditor perform to identify the risk of material misstatement due to fraud?

* An auditor performs the following steps to identify the risks of material misstatement due to fraud:

• Discussion among the audit team members regarding the risks of material misstatement due to fraud.

• Inquire of management and others about their views on the risks of fraud and how it is addressed.

• Consider any unusual or unexpected relationships that have been identified in performing analytical procedures in planning the audit.

• Understand the client's period-end closing process and investigate unexpected period-end adjustments.

Management fraud (e.g., fraudulent...