审计学英文教学课件：Chapter 7 Audit risk

1、Chapter 7Audit risk1Lecturer 陈丹2CPA3Risk is the uncertainty in achieving objectives.4What is audit risk?What is risk?What is audit objective?Audit objective is to express an appropriate opinionAudit risk is the risk that the auditor expresses an inappropriate audit opinion What is audit risk ?What i

2、s risk?Risk is the uncertainty in achieving objectivesWhat is audit objective?Audit objective is to express an appropriate opinionAudit risk?5Audit opinion QualifiedDisclaimerAdverseUnqualified When there is no MM When there are (potential) MMAudit opinions for companies listed on Chinas A-stock mar

3、ket in 20136272507Unqualified opinionQualified opinionDisclaimer of opinionAdverse opinion/news/201505/t20150522_47052.html8Audit opinion QualifiedDisclaimerAdverseUnqualifiedWhen there is no MMWhen there are (potential) MMAudit risk!9101112BRRMM 13RMMBRNo MM!DRARQuiz: Analyzing audit riskNew accoun

4、ting standards will be applied in the entity since this year.The entitys CFO plans to capitalise R&D expenditures.The auditor is not supervised adequately.The auditor performs an incorrect sampling techniques.14RMMAR=IRXCRXDR15ARThe risk that the auditor expresses an inappropriate audit opinion when

5、 the financial statements are materially misstated16RMMThe risk that the financial statements are materially misstated prior to audit.17IRThe susceptibility of an assertion to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration

6、 of any related controls18CRThe risk that a misstatement that could occur in an assertion and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entitys internal control19DRThe risk that

7、the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that occur in an assertion and that could be material, either individually or when aggregated with other misstatements2021Transactionsand eventsAccount balances atthe period-endPres

8、entation anddisclosureOccurrenceExistenceOccurrence andrights andobligationsCompletenessRights andobligations CompletenessAccuracyCompletenessClassification andunderstandabilityCutoffValuation andallocationAccuracy andvaluationClassification管理层认定、审计目标和审计程序之间的关系举例 管理层认定 审计目标 审计程序 存在性 资产负债表列示的存货存在 实施存

9、货监盘程序 完整性 销售收入包括了所有已发货的交易检查发货单和销售发票的编号以及销售日记帐等 准确性 应收账款反映的销售业务是基于正确的价格和数量，计算准确 比较价格清单与发票上的价格、发货单与销售订购单上的数量是否一致，重新计算发票上的金额 截止 销售业务记录在恰当的期间 比较上一年度最后几天和下一年度最初几天的发货单日期与记账日期 权利和义务 资产负债表中的固定资产确实为公司拥有 查阅所有权证书、购货合同、结算单和保险单 计价和分摊 以净值记录应收款项 检查应收账款账龄分析表、评估计提的坏账准备是否充足Audit Risk Model and Audit Approach 23AR=IRX

10、CRXDRSystem-based audit approachAccount-based audit approachRisk- based audit approachThe following factors can result in an increase in inherent risk : Going concern and liquidity issues including loss of significant customers. Developing or offering new products or services, or moving into new lin

11、es of business. Expanding into new locations. Accounting measurements that involve complex processes. Events or transactions that involve significant accounting estimates. Pending litigation and contingent liabilities. Changes in the industry it operates in. Operations that are subject to a high deg

12、ree of regulation. Application of new accounting standards.24The following factors can result in an increase in control risk: Lack of personnel with appropriate accounting and financial reporting skills. Changes in key personnel including departure of key management. Deficiencies in internal control

13、, especially those not addressed by management. Changes in the information technology (IT) environment. Installation of significant new IT systems related to financial reporting.25Detection risk is affected by sampling and non-sampling risk and factors which can result in an increase include: Incorr

14、ect sampling techniques performed. Incorrect sample sizes. Inadequate planning. Inappropriate assignment of personnel to the engagement team. Failing to apply professional scepticism. Inadequate supervision and review of the audit work performed.2627Accepted DR 28=orAccepted AR Assessed RMM Manage a

15、udit risk to be ZERO?limitations of auditing2930ARAudit objective Audit opinion RMMBusiness riskDRLimitations of AuditWhat?How?Why?31Past Exam QuestionsJune 15 Q5bDec 14 Q2June 14 Q3aDec 13 Q1abJune13 Q3b (ii)Dec 12 Q3bDec 11 Q3abJune 11 Q3b Dec 10 Q3c(ii)June 10 Q1a Dec 08 Q4abJune 05 Q1ab(i)321/4

16、Providing definitions of the audit risk model, even though this was not part of the question requirement332/4 A lack of understanding of what audit risk is and providing business risks instead 34EXAMPLE 1 (BR OR AR ?) Question 3b from the June 2011 exam: The travel agents are given a 90-day credit p

17、eriod to pay Donald Co; however, due to difficult trading conditions, a number of the receivables are struggling to pay. Option A: The business faces the risk of slow cash flows and so there is a risk related to the liquidity of Donald Co Option B: If receivables are struggling to pay, then they may

18、 be overstated and, hence, valuation of receivables is the relevant risk 35EXAMPLE 2 (BR OR AR ?) Question 1a from the June 2010 exam told candidates: Purchase orders for overseas paint are made six months in advance and goods can be in transit for up to two months. Option A: Company may encounter p

19、roblems with stock-outs of goods Option B: purchase could be recorded in the inappropriate accounting period. 36Other examples of audit risks include:Existence of property plant and equipment Revenue expenditure has been capitalised rather than charged as an expense in the statement of profit or los

20、sValuation of inventorythere are considerable levels of aged inventoryCompleteness of liabilities Provisions have been incorrectly treated as contingent liabilitiesCompleteness of revenue The entity being audited has significant cash sales.373/4 Not providing an adequate response to the risk. This n

21、eeds to be from the perspective of the auditor and not from managements perspective 38EXAMPLE (APPROPRIATE AUDITORS RESPONSE) Question 3b from the June 2011 exam: The travel agents are given a 90-day credit period to pay Donald Co; however, due to difficult trading conditions, a number of the receiv

22、ables are struggling to pay. Option A: Management needed to chase these outstanding customers Option B: Focus on testing valuation through after date cash receipts or reviewing the aged receivables ledger39 Responses are not as detailed as audit procedures; instead they relate to the approach the au

23、ditor will adopt to confirm whether the transactions or balances are materially misstated. 4041To confirm use of standard costs for inventory valuationAudit responseAudit proceduresThe standard costs used for the inventory valuation should be tested in detail and compared to actual cost. If there ar

24、e significant variations this should be discussed with management, to ensure that the valuation is appropriate.Discuss with management of Abrahams Co the basis of the standard costs applied to the inventory valuation, and how often these are reviewed and updated. Review the level of variances betwee

25、n standard and actual costs and discuss with management how these are treated.Obtain a breakdown of the standard costs and agree a sample of these costs to actual invoices or wage records to assess their reasonableness.42to request directly from the companys bank as to whether the bank will provide

26、a loan or renew a bank overdraft. The bank is not going to provide this type of information to the auditor, especially if they have not yet informed the company, and therefore this response will not generate any marks.Impractical responses 4/4 A limited range of risks identified, often just focusing

27、 on one area such as going concern.43Dec 11 Q3b Using the information provided, identify and describe FIVE audit risks and explain the auditors response to each risk in planning the audit of Abrahams Co. (10 marks)44Revenue for the year is forecast at $25 million. During the year the company has spe

28、nt $22 million on developing several new products. Some of these are in the early stages of development whilst others are nearing completion. The finance director has confirmed that all projects are likely to be successful and so he is intending to capitalise the full $22 million.Revenue for the year is forecast at $25 million. During the year the company has spent $22 million on developing several new products. Some of these are in the early stages of development whilst oth