Explore BrainMass
Share

External Audit: relationship between risk and materiality

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

To assess your company's liability for the external audit, you must discuss with your team the following topics:

What is the relationship of risk and materiality?
How are risk and materiality related?
How are risk and materiality integrated into the audit process?
What is an example of a statement that includes both risk tolerance and materiality?

© BrainMass Inc. brainmass.com October 16, 2018, 9:52 pm ad1c9bdddf
https://brainmass.com/business/auditing/external-audit-relationship-between-risk-and-materiality-200092

Solution Preview

Risk and materiality are two of the most difficult concepts to grasp in auditing and largely because they are quite subjective. Defining audit risk is the risk that an unqualified audit opinion may be issued which includes a material misstatement. Because the number and types of stakeholders relying on audited financial statements could be impacted by a material misstatement, the risk of litigation and other actions by accounting regulatory bodies is high. High risk can lead to high costs in defense of claims, loss of a client, damage to reputation, increased malpractice insurance, and more.

The assessment of risk is one of the first steps in the audit process (particularly for a new ...

Solution Summary

In a 400 word solution, the concepts of risk and materiality are discussed in terms of audit planning and execution. Several examples are offered to demonstrate situations which deal with both risk tolerance and materiality issues. The fact that these concepts are subjective makes them one of the most difficult areas of external auditing.

$2.19
Similar Posting

Audit fraud: Evidence, risk assessment, specific risks, components of audit risk

Below are five questions that all need to be based on the United States.

1. Provide and discuss some of the evidence regarding the significance of fraud in the United States.

2. Describe the risk assessment procedures used by auditors to identify risks of material misstatements in the financial statements due to fraud.

3. Explain two specific risks of fraud that the auditor should always consider in every audit. How should the auditor respond to these risks when making decisions about the risk of material misstatement?

4. What is the relationship among the components of audit risk?

5. Explain the relationship between materiality, detection risk, and substantive audit evidence.

View Full Posting Details