Audit Risk Essay

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Question :-Auditors make risk assessments in terms of inherent, control and detection risks. Explain each risk and give an example of each.
Audit risk is a type of risk that takes place when an auditor fails to detect the error or fraud in the financial statement information and therefore issue an incorrect point of view on it. Audit risk basically consists of 3 components namely inherent, control and detection risk. Auditors design and implement methods to check risks associated with other components of audit risk to ensure they are within tolerable limit and company is able to meet its targeted goals.
INHERENT RISK usually occurs either due to human error or physical environment of the organisation that results inaccuracy in the financial reporting. This type of risk cannot be diverted or transferred in any case. Also it takes place in the absence of internal controls or you can say they are not in place or properly implemented. It can be considered high, medium or low. It is said to be higher if transactions are highly complex or evaluations involved are high level.It can be reduced if internal controls are implemented. …show more content…

It can be either a fraudulent case or theft committed by company’s employee. Cash can be easily taken away and is more easy way to cheat.
Also another example can be that if it is stated in company’s rules and regulations that it doesn’t give blank cheque to any of its client and if owner of the company ask for same, they can’t deny it giving to him. Therefore they are going against the policy set by the

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