Audit
Risk Concept
Audit risk is that auditor
expresses an inappropriate opinion on financial statement, where financial
statements are misstated. It means that auditor could not detect the
misstatement in the financial statement and therefore expressed an inappropriate
opinion. Audit risk basically related to audit procedures.
Types
of Audit Risk
There are two types of
audit risk i.e. significant audit risk and insignificant audit risk.
Significant risk is auditor express that financial statement is not materially
misstated but in fact these are and vise versa.
Element
of Audit Risk
Audit risk is basically a
function of risk of misstatement and detection risk.
How
audit risk is assessed?
Audit risk is assessed by
the audit procedures applied throughout the audit and information obtained from
those audit procedure.
Measurement
of Audit Risk
The measurement of audit
risk is not possible; rather it is assessed on the bases of professional
judgment. For example one cannot say that there is 20% or 30% audit risk.
Elimination
of Audit Risk
Audit risk cannot be
eliminated due to inherent limitation of audit.
Inherent limitation arises from the following
a) limitation
of financial reporting
b) limitation
of audit procedures
c) Deadlines
d) Audit
work is based on sampling
e) Audit
evidence is persuasive rather than conclusive.
Inherent limitation cannot
be used as excuse for using less than persuasive audit evidence. Auditor must
seek persuasive audit evidence for conclusion.
Lowering
Audit Risk
Audit risk can be lowered
by the appropriate planning & directing the audit effort to those areas
which are more risky. Use more extensive testing for risky areas.
