Audit Risk in the Brave New World

3187 WordsAug 18, 201013 Pages
Audit & taxation | Audit Risk in the Brave New World | Audit Risk Model | | | 6/27/2010 | Submitted To: MR. Asim Khan Submitted By Bilal Khalid INTRODUCTION The audit risk model has provided a conceptual framework for auditing practice for more than 40 years. Despite practical difficulties in implementation and criticisms of its theoretical foundation, the model has been fairly effective in helping auditors analyze risks and use that analysis to determine the nature, timing, and extent of audit procedures (especially substantive procedures) in audits of financial statements. The audit risk model provides a conceptual framework for the risk assessment standards. In recent years, auditors have tried to apply the…show more content…
These are: * ISA 315, Understanding the Entity and its Environment and Assessing the Risks of Material Misstatements * ISA 330, The Auditor 's Procedures in Response to Assessed Risks * ISA 500 (Revised), Audit Evidence. The requirements in these newly-issued risk standards represent significant changes to the standards governing audits of financial statements. They enable the auditors to focus more clearly on areas where there is a greater risk of misstatement of the financial statements. The belief is that these risk standards will increase audit quality. This is as a result of better risk assessments through a more detailed understanding of the entity and its environment, including internal control, and improved design and performance of audit procedures to respond to assessed risks of material misstatements. The improved linkage of audit procedures and assessed risks is expected to result in a greater concentration of audit effort on areas where there is a greater risk of material misstatements. The scope of each of the risk standards is reflected in the introduction to the standards, and can be summarized as follows. ISA 315 This standard provides guidance on performing audit procedures to obtain a broader understanding of the entity and its environment, including its internal control, and on assessing risks of material misstatement. The IAASB recognises that there may be specific considerations relevant to the audit of small

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