In this lesson, the concept of audit risk is introduced with a focus on its objectives. The lesson explains how planned audit procedures can address the risks of material misstatements due to fraud or error. The importance of considering both fraud and error in material misstatements is discussed, highlighting their equal significance from an auditor's perspective. The lesson goes on to explore the analysis of the risk of material misstatement, including the potential impact of individual and cumulative misstatements. The relationship between the components of audit risk – inherent, control, and detection risk – and the extent of testing required is also explained, emphasizing the importance of a thorough audit risk assessment.
Lesson: Audit Risk Objectives
In this lesson, the concept of audit risk is introduced with a focus on its objectives. The lesson explains how planned audit procedures can address the risks of material misstatements due to fraud or error. The importance of considering both fraud and error in material misstatements is discussed, highlighting their equal significance from an auditor's perspective. The lesson goes on to explore the analysis of the risk of material misstatement, including the potential impact of individual and cumulative misstatements. The relationship between the components of audit risk – inherent, control, and detection risk – and the extent of testing required is also explained, emphasizing the importance of a thorough audit risk assessment.
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