Презентация на тему: Audit risks

Audit risks
Audit risks
Audit risk
Risk
Risk and Evidence
ISA 315
RoMM
Components of RoMM
Inherent risk
Audit risks
Examples of inherent risks
Audit risks
Components of RoMM
Control risk
Audit risks
Detection risk
How to manage the risk?
Managing the risk example
Audit risks
Audit risks
What is a misstatement?
Risk assessment procedures
Risk assessment procedures
Risk assessment procedures
Risk assessment procedures
Risk assessment procedures
Audit risks
Audit risks
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Первый слайд презентации: Audit risks

Sergey Nezdemkovskiy

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Слайд 2

Audit risk Risk of material misstatement Detection risk Inherent risk Control risk

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Слайд 3: Audit risk

Audit risk is the risk that the auditor expresses an inappropriate audit opinion

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Слайд 4: Risk

Auditors accept some level of risk in performing the audit. An effective auditor recognizes that risks exist, are difficult to measure, and require careful thought to respond. Responding to risks properly is critical to achieving a high-quality audit.

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Слайд 5: Risk and Evidence

Auditors gain an understanding of the client’s business and industry and assess client business risk. Auditors use the audit risk model to further identify the potential for misstatements and where they are most likely to occur.

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Слайд 6: ISA 315

ISA 315 (Revised) Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment states: 'The objective of the auditor is to identify and assess the risk of material misstatement, whether due to fraud or error, at the financial statement and assertion levels, through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement.'

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Слайд 7: RoMM

Risk of material misstatement is the risk that the financial statements are materially misstated prior to audit and consists of two components, inherent risk and control risk.

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Слайд 8: Components of RoMM

RoMM = Inherent risk x Control risk

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Слайд 9: Inherent risk

Inherent risk is the susceptibility of an assertion about a class of transaction, account balance or disclosure to misstatement that could be material, before consideration of any related controls.

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Слайд 10

Examples? Complex accounting treatment ( eg. Estimates); Nature of the company or the industry;

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Слайд 11: Examples of inherent risks

Examples of inherent risks for companies are limitless, however, here are a few examples: The car industry is one of the first industries to suffer during an economic downturn due to the reluctance of the population to spend money or take out loans that they may struggle to pay back. For this reason, we could say that the car industry is inherently risky. Financial institutions deal with complex financial instruments such as derivatives. These instruments can be incredibly difficult to account for and value and so are inherently risky.

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Слайд 12

Companies such as Zara and H&M operate in the fashion industry where trends and tastes change rapidly. For companies such as these, sales and inventory balances are inherently risky. A company is heavily financed by debt. This is inherently risky as missed interest payments and repayments may lead to insolvency. A company operates a profit related bonus scheme. Its profit figures are inherently risky as there is the incentive to management to manipulate them to achieve the bonus targets. Examples of inherent risks

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Слайд 13: Components of RoMM

RoMM = Inherent risk x Control risk

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Слайд 14: Control risk

Control risk is the risk that a misstatement that could occur and that could be material will not be prevented, or detected and corrected on a timely basis by the entity's internal controls. Could be higher or lower

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Слайд 15

Audit risk Risk of material misstatement Detection risk Inherent risk Control risk

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Слайд 16: Detection risk

Detection risk is the risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material. Detection risk comprises : Sampling risk Non - sampling risk

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Слайд 17: How to manage the risk?

assigning more experienced staff to risk areas increasing supervision levels increasing the element of unpredictability in sample selection changing the nature, timing and extent of procedures increasing the emphasis on substantive tests of detail emphasising the need for professional scepticism.

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Слайд 18: Managing the risk example

SerikAga Ltd is from an industry that is highly exposed to the economic climate, uses lots of complex treasury instruments such as interest rate swaps and futures and has a very poor system of internal controls BakeMake Inc operates in a low risk industry, has few complex transactions and a highly sophisticated system of internal controls.

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Слайд 19

As inherent risk and control risk are so high, the only way we can bring audit risk down to an acceptably low level is to lower detection risk. This means that the risk of the auditors not finding a misstatement needs to be low. In practice this means that the auditors need to do more work : less reliance on controls and more substantive testing; larger sample sizes; more experienced auditors.

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Слайд 20

As inherent and control risk are low then theoretically detection risk can afford to be high. Be careful, however, as this is a theoretical concept and under no circumstances will the auditors do no work! They can just do a different type of work: More reliance on the strong internal controls and less detailed substantive testing.

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Слайд 21: What is a misstatement?

ISA 450: 'A difference between the amount, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud.'

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Слайд 22: Risk assessment procedures

Observation and inspection 3 Enquiries 1 Analytical procedures 2

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Слайд 23: Risk assessment procedures

Understanding the entity and its environment relevant industry, regulatory and other external factors (including the financial reporting framework) the nature of the entity, including: – its operations – its ownership and governance structures – the types of investment it makes – the way it is structured and financed the entity's selection and application of accounting policies the entity's objectives, strategies and related business risks the internal controls relevant to the audit.

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Слайд 24: Risk assessment procedures

The information used to obtain this understanding can come from a wide range of sources.

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Слайд 25: Risk assessment procedures

Analytical procedures are defined in ISA 520 Analytical Procedures as: 'Evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data ' and investigation of identified fluctuations, inconsistent relationships or amounts that differ from expected values. Analytical procedures are fundamental to the auditing process. Prior periods Industry information Financial ratios

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Слайд 26: Risk assessment procedures

Key ratios

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Audit risk Risk of material misstatement Detection risk Inherent risk Control risk

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Последний слайд презентации: Audit risks

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