Audit Risk (AR) expresses the general relationship of risks associated with the auditor's assessments of risk of material misstatements (RMM = inherent risk x control risk); the risk that audit procedures will fail to detect a material financial statement misstatement due to an internal control failure (DR).
Audit Risk must be low because of the high level of assurance provided by the audit opinion.
In our previous posts we have discussed the new risk standards promulgated by the AICPA affecting audits for years ending after 12/16/07. In post #5 we briefly discussed SAS 108 and 109. Now we will end this series of posts and discuss SAS 110 and 111.
The new auditing standards require certain communications to “those charged with governance”. These individuals are responsible for overseeing the strategic direction of the church or ministry. These same individuals have accountability for and to the entity, including the financial reporting process.
Those charged with governance may include a board of directors, a supervisory board, or trustees. Subgroups (such as an audit committee) may be charged with specific tasks to assist a governing body in meeting its responsibilities.
Detection Risk (DR) is the risk the auditor will not detect a misstatement in the financial statements. Detection risk is a function of the effectiveness audit procedures.
RMM (defined previously) X DR = Audit Risk
In our previous posts we have discussed the new risk standards promulgated by the AICPA affecting audits for years ending beginning on or after 12/15/06. In post #4 we briefly discussed SAS 106 and 107. Now we will discuss SAS 108 and 109.
SAS 108 –requires a more detailed audit plan than what was previously accepted. This standard will require more interaction with clients and it may take the auditor longer to generate the plan.
In our previous posts we have discussed several of the new auditing standards that auditors are required to perform for audits with financial statements ending after December 16, 2007. Basically this impacts financial statement audits for years ending December 31, 2007. In this post, we will update you on Statements of Auditing Standard “SAS” # 106 and #107.
Auditors normally provide a list of items that they will need during the course of the audit. This list is usually prepared and delivered to the client during the planning phase of the engagement. These items normally include reconciliations and support for selected transaction throughout the year. Management should take time to prepare these work papers and have all applicable requests completed before the audit begins. This maximizes the auditor’s efficiency and management’s time required during the fieldwork.
Cash Basis - vs - Modified Cash Basis…What’s the Difference?
As noted in our previous post, the AICPA has issued several new auditing standards that are applicable for audits ending after 12/16/07. We will briefly discuss the 8 new standards:
SAS 104 – More clearly defines the level of assurance auditors are to provide the client and interested 3rd parties regarding whether or not the client’s financial statements are free of material misstatement. This has not direct client impact.
Inherent Risk is defined as "what could go wrong, in the absence of internal controls".
Internal Controls are defined as...systems in place that identify errors and irregularities on a timely basis.
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