Audit Risk Model Limitation

The audit risk model is not intended to be an exact formula that includes all factors influencing the assessment of audit risk.  Name 1 limitation of the audit risk model.

In my opinion, the most glaring limitation of the audit risk model is the simple fact that auditors are human. Auditors estimate and assess the inherent risk and control risk that a company has when he or she are setting their planned level of audit risk. A common risk assessment procedure is interviewing employees and observing them throughout their workday.

An issue may arise when an auditor doesn’t ask the right question to the right employee, or happen to observe a behavior that may require further inspection. For example, if an employee is in charge of payments made in the accounts payable department, and an auditor does not deem it necessary to inquire further information from vendors, he or she may not reveal that a fictitious vendor exists and the employee in charge of accounts payable is cashing the payments sent to this vendor.

Thus, I think that a margin of human error is possible in any auditing scenario. There is never a completely effective way to determine what aspects should be investigated further, whether it is internal employees, customers, suppliers, or valuation specialists.

Estimation for fair value

Subjective and determined by executive, not something set in stone

Auditor can follow all standards and still give poor opinion and risk assessment and even though following the standard, can get sued

Relying upon certain information and unable to assess 100% of every single account, process and control

Thus there will always be a possible margin of error in every audit

When determines that one type of risk is lower, would accept higher risk because of inverse relation