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Inherent Risk (accounting)
Inherent risk, in a financial audit, measures the auditor's assessment at the assertion level of the likelihood that there are material misstatements, either individually or in aggregate, due to error or fraud in a class of transactions, account balance or disclosure before considering the effectiveness of internal control. If the auditor concludes that a high likelihood exist, the auditor will conclude that inherent risk is high. Inherent risk is one of two components of the risk of material misstatement i.e. the risk that the financial statements are materiality misstated prior to audit. The other component is control risk. 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 comp ... is a function of the risk of material misstatement and detection risk. See also * Inherent ris ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Audit
A financial audit is conducted to provide an opinion whether "financial statements" (the information is verified to the extent of reasonable assurance granted) are stated in accordance with specified criteria. Normally, the criteria are international accounting standards, although auditors may conduct audits of financial statements prepared using the cash basis or some other basis of accounting appropriate for the organization. In providing an opinion whether financial statements are fairly stated in accordance with accounting standards, the auditor gathers evidence to determine whether the statements contain material errors or other misstatements.Arens, Elder, Beasley; Auditing and Assurance Services; 14th Edition; Prentice Hall; 2012 Overview The audit opinion is intended to provide reasonable assurance, but not absolute assurance, that the financial statements are presented fairly, in all material respects, and/or give a true and fair view in accordance with the financial rep ... [...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] |
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] |
Internal Control
Internal control, as defined by accounting and auditing, is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. A broad concept, internal control involves everything that controls risks to an organization. It is a means by which an organization's resources are directed, monitored, and measured. It plays an important role in detecting and preventing fraud and protecting the organization's resources, both physical (e.g., machinery and property) and intangible (e.g., reputation or intellectual property such as trademarks). At the organizational level, internal control objectives relate to the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations. At the specific transaction level, internal controls refers to the actions taken to achieve a specific objective (e.g., h ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Control Risk
Audit risk (also referred to as residual risk) as per 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 (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 (DR), the probability that the auditing procedures may fail to detect existence of a material error or fraud. Detection risk may be due to sampling error or non-sampling error. Audit risk can be calculated as: :AR ... [...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] |
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] |
Financial Reporting Council
The Financial Reporting Council (FRC) is an independent regulator in the UK and Ireland based in London Wall in the City of London, responsible for regulating auditors, accountants and actuaries, and setting the UK's Corporate Governance and Stewardship Codes. The FRC seeks to promote transparency and integrity in business by aiming its work at investors and others who rely on company reports, audits and high-quality risk management. In December 2018, an independent review of the FRC, led by Sir John Kingman, recommended its replacement by a new Audit, Reporting and Governance Authority, a recommendation that the government agreed to follow in March 2019 but later delayed. Ireland adopted the FRC's auditing framework in 2017. Structure The FRC is a company limited by guarantee, and is funded by the audit profession, who are required to contribute under the provisions of the Companies Act 2006 and by other groups subject to, or benefitting from FRC regulation. Its board of ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Inherent Risk
Inherent risk, in risk management, is an assessed level of raw or untreated risk; that is, the natural level of risk inherent in a process or activity without doing anything to reduce the likelihood or mitigate the severity of a mishap, or the amount of risk before the application of the risk reduction effects of controls. Another definition is that inherent risk is the current risk level given the existing set of controls, which may be incomplete or less than ideal, rather than an absence of any controls. Strategic Risk involves risks that affect the organization’s ability to achieve its goals and objectives. Inherent strategic risks could stem from changes in the business environment, competitive pressures, or shifts in consumer preferences. Operational Risk are risks associated with the day-to-day operations of an organization. Inherent operational risks can arise from internal processes, people, systems, or external events that disrupt operations. Financial Risk includes ris ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
