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Detection Risk
Detection Risk (DR) is the risk that the auditor will not detect a misstatement that exists in an assertion that could be material, either individually or when aggregated with other misstatements. In other words, the chance that the auditor will not find material misstatements relating to an assertion in the financial statements through substantive test and analysis. Detection risk results in the auditor's conclusion that no material errors are present where in fact there are. It is a component of audit risk. Detection Risk and quality of audit have an inverse relationship: if detection risk is too high, the lower the quality of the audit and if detection risk is low, generally the quality of the audit increases. References {{reflist See also * Audit risk * Sampling error * Non-sampling error In statistics, non-sampling error is a catch-all term for the deviations of estimates from their true values that are not a function of the sample chosen, including various systematic error ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Auditor
An auditor is a person or a firm appointed by a company to execute an audit.Practical Auditing, Kul Narsingh Shrestha, 2012, Nabin Prakashan, Nepal To act as an auditor, a person should be certified by the regulatory authority of accounting and auditing or possess certain specified qualifications. Generally, to act as an external auditor of the company, a person should have a certificate of practice from the regulatory authority. Types of auditors * External auditor/ Statutory auditor is an independent firm engaged by the client subject to the audit, to express an opinion on whether the company's financial statements are free of material misstatements, whether due to fraud or error. For publicly traded companies, external auditors may also be required to express an opinion over the effectiveness of internal controls over financial reporting. External auditors may also be engaged to perform other agreed-upon procedures, related or unrelated to financial statements. Mo ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Materiality (auditing)
Materiality is a concept or convention within auditing and accounting relating to the importance/significance of an amount, transaction, or discrepancy. The objective of an audit of financial statements is to enable the auditor to express an opinion on whether the financial statements are prepared, in all ''material'' respects, in conformity with an identified financial reporting framework, such as the Generally Accepted Accounting Principles (GAAP) which is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). As a simple example, an expenditure of ten cents on paper is generally immaterial, and, if it were forgotten or recorded incorrectly, then no practical difference would result, even for a very small business. However, a transaction of many millions of dollars is almost always material, and if it were forgotten or recorded incorrectly, then financial managers, investors, and others would make different decisions as a result of this error th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Management Assertions
Management assertions or financial statement assertions are the implicit or explicit assertions that the preparer of financial statements (management) is making to its users. These assertions are relevant to auditors performing a financial statement audit in two ways. First, the objective of a financial statement audit is to obtain sufficient appropriate audit evidence to conclude on whether the financial statements present fairly, in all material respects, the financial position of a company and the results of its operations and cash flows. In developing that conclusion, the auditor evaluates whether audit evidence corroborates or contradicts financial statement assertions. Second, auditors are required to consider the risk of material misstatement through understanding the entity and its environment, including the entity's internal control. Financial statement assertions provide a framework to assess the risk of material misstatement in each significant account balance or class of ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Audit Substantive Test
Substantive procedures (or substantive tests) are those activities performed by the auditor to detect material misstatement at the assertion level. Management implicitly assert that account balances and disclosures and underlying classes of transactions do not contain any material misstatements: in other words, that they are materially complete, valid and accurate. Auditors gather evidence about these assertions by undertaking activities referred to as substantive procedures. Types of procedures There are two categories of substantive procedures - substantive analytical procedures and tests of detail. Analytical procedures generally provide less reliable evidence than the tests of detail. Examples For example, an auditor may: physically examine inventory Inventory (British English) or stock (American English) is a quantity of the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline prima ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Audit Risk
Audit risk (also referred to as residual risk) as per International Standards on Auditing , ISA 200 refers to the risk that the auditor expresses an inappropriate opinion when the financial statements are materiality misstated. This risk is composed of: *Inherent risk (accounting), Inherent risk (IR), the risk involved in the nature of business or transaction. Example, transactions involving exchange of cash may have higher IR than transactions involving settlement by cheques. The term ''inherent risk'' may have other definitions in other contexts.; *Control risk (CR), the risk that a misstatement may not be prevented or detected and corrected due to weakness in the entity's internal control mechanism. Example, control risk assessment may be higher in an entity where separation of duties is not well defined; and *Detection risk , Detection risk (DR), the probability that the auditing procedures may fail to detect existence of a material error or fraud. Detection risk may be du ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Inverse Relationship
In statistics, there is a negative relationship or inverse relationship between two variables if higher values of one variable tend to be associated with lower values of the other. A negative relationship between two variables usually implies that the correlation between them is negative, or — what is in some contexts equivalent — that the slope in a corresponding graph is negative. A negative correlation between variables is also called inverse correlation. Negative correlation can be seen geometrically when two normalized random vectors are viewed as points on a sphere, and the correlation between them is the cosine of the circular arc of separation of the points on a great circle of the sphere. When this arc is more than a quarter-circle (θ > π/2), then the cosine is negative. Diametrically opposed points represent a correlation of –1 = cos(π), called anti-correlation. Any two points ''not'' in the same hemisphere have negative correlation. An example would be a negat ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Audit Risk
Audit risk (also referred to as residual risk) as per International Standards on Auditing , ISA 200 refers to the risk that the auditor expresses an inappropriate opinion when the financial statements are materiality misstated. This risk is composed of: *Inherent risk (accounting), Inherent risk (IR), the risk involved in the nature of business or transaction. Example, transactions involving exchange of cash may have higher IR than transactions involving settlement by cheques. The term ''inherent risk'' may have other definitions in other contexts.; *Control risk (CR), the risk that a misstatement may not be prevented or detected and corrected due to weakness in the entity's internal control mechanism. Example, control risk assessment may be higher in an entity where separation of duties is not well defined; and *Detection risk , Detection risk (DR), the probability that the auditing procedures may fail to detect existence of a material error or fraud. Detection risk may be du ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Sampling Error
In statistics, sampling errors are incurred when the statistical characteristics of a population are estimated from a subset, or sample, of that population. Since the sample does not include all members of the population, statistics of the sample (often known as estimators), such as means and quartiles, generally differ from the statistics of the entire population (known as parameters). The difference between the sample statistic and population parameter is considered the sampling error.Sarndal, Swenson, and Wretman (1992), Model Assisted Survey Sampling, Springer-Verlag, For example, if one measures the height of a thousand individuals from a population of one million, the average height of the thousand is typically not the same as the average height of all one million people in the country. Since sampling is almost always done to estimate population parameters that are unknown, by definition exact measurement of the sampling errors will not be possible; however they can often ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Non-sampling Error
In statistics, non-sampling error is a catch-all term for the deviations of estimates from their true values that are not a function of the sample chosen, including various systematic error Observational error (or measurement error) is the difference between a measurement, measured value of a physical quantity, quantity and its unknown true value.Dodge, Y. (2003) ''The Oxford Dictionary of Statistical Terms'', OUP. Such errors are ...s and random errors that are not due to sampling.Dodge, Y. (2003) ''The Oxford Dictionary of Statistical Terms'', OUP. Non-sampling errors are much harder to quantify than sampling errors.Fritz Scheuren (2005). "What is a Margin of Error?", Chapter 10, inWhat is a Survey?", American Statistical Association, Washington, D.C. Accessed 2008-01-08. Non-sampling errors in survey estimates can arise from: * Coverage errors, such as failure to accurately represent all population units in the sample, or the inability to obtain information about all sam ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Auditing
An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon." Auditing also attempts to ensure that the books of accounts are properly maintained by the concern as required by law. Auditors consider the propositions before them, obtain evidence, roll forward prior year working papers, and evaluate the propositions in their auditing report. Audits provide third-party assurance to various stakeholders that the subject matter is free from material misstatement. The term is most frequently applied to audits of the financial information relating to a legal person. Other commonly audited areas include: secretarial and compliance, internal controls, quality management, project management, water management, and energy conservation. As a result of an audit, stakeholders may evaluate and improve the effectiveness of ri ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
