What are the risks and liability factors in an audit? What are the implications to the auditor? What are the implications to the organization? How can the auditor mitigate these risks and liability factors?
What are the risks and liability factors in an audit?
The most important audit risk to the auditors is that they may give an unqualified opinion on the financial statements of a company that are materially misstated. The result could generate lawsuits, serious damage to reputations, or loss of value to stakeholders.
There is a large body of literature which discusses methods and procedures to try to avoid material misstatement. An auditor cannot possibly examine or test every transaction for a client for a year in order to determine that there will be no material misstatement. Therefore, procedures are designed to detect errors in an effort to avoid misstatements.
On the other hand, auditors have to compete for fees in the marketplace, and it is a serious task to determine how to minimize testing and other procedures to avoid misstatement.
What are the implications to the auditor?
When a financial statement has been issued and is later determined to be materially misstated, the auditor must correct the statements and reissue. Other than possible damage ...
In a 702 word solution, the topic of risk and liability is discussed together with examples and a reference to source material.