Please discuss the following question and use an example if possible.
Question: Define control risk and explain the role of control risk assessment in audit planning.
Control risk is the risk or probability that internal controls will not prevent or detect errors or irregularities (intentional errors or wrong-doing) in the financial reporting system and therefore lead to a material misstatement of the financial statements.
During the financial statement audit, the auditor gets an understanding of the client's processes for detecting and recording financial activities. In these processes there are controls that help ensure that transactions are authorized, and recorded properly (all that are recorded should be in there and in the right spot), and that all transaction are recorded (none left out). This understanding of the process and controls ...
Your tutorial is 451 words and explains control risk and then shows how a change in control risk alters the detection risk in order to achieve a desired level of audit risk during the planning phase of a financial statement audit. An example is also provided on this topic to further highlight how to understand this subject fully.