What is management responsible for in an audit engagement?
It is management’s (of the organization being audited) responsibility to properly present financial statements accurately and in accordance with the applicable financial reporting framework to financial statement readers.
In addition, Management is responsible for designing, implementing, and maintaining the internal control framework. If the audit team prepares the financial statements or assists with controls, then how could they perform an independent audit?
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What is a material misstatement?
Material misstatements represents the financial statements presented by a client that are not in conformity with Generally Accepted Accounting Principles, in all material respects and indicate the auditor’s belief that the financial statements, taken as a whole, are materially misstated. Misstatements can result from errors or fraud and may consist of any of the following: […]
What is detection risk?
Detection risk is the risk that the auditor will not detect a material misstatement that exists in a relevant assertion. Unlike inherent and control risks, detection risk is will not exist independently of the audit. Therefore, the assessed level of detection risk (amount of work the auditor will need to do) will be determined based […]
If the risk of material misstatement is high, should I perform more or less substantive testing?
If the risk of material misstatement is high, that means that inherent risk is high and that control risk is also high. When that is the case, in order to reduce overall audit risk, more effective substantive testing procedures should be performed. To perform more effective substantive procedures, the audit team should consider what type […]