Unit No: 1 Audit Risk Assessment and Digital Auditing Assurance

 Unit No: 1 

Audit Risk Assessment and Digital Auditing Assurance

1.1 Audit Risk Assessment

1.1.1 SA 315 (Identifying and Assessing the Risk of Material Misstatements through Understanding the Entity and its Environment) 

1.1.2 SA 320 (Materiality in Planning and Performing an Audit)

1.1.3 SA 330 (The Auditor's Responses to Assessed Risk)

1.2 Digital Auditing Assurance 

1.2.1 Auditing Digitally and Digital Auditing

1.2.2 Usage of Automated Tools in Auditing: CAAT, Data Analytics, and Artificial Intelligence etc.

1.2.3 Remote Auditing

Audit Risk Assessment

Audit risk means the risk that the auditors gives an inappropriate audit opinion when the financial statement are materially misstated. Thus, it is the risk that the auditor may fail to express an appropriate opinion in an audit assignment

Audit Risk = Inherent Risk + Control Risk + Detection Risk

Inherent Risk:

The susceptibility of an assertion to a misstatement due to error or fraud, assuming there are no related controls. 

Control Risk

The risk that a misstatement that could occur in an assertion and that could be material, individually or in combination with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity's internal control.

Detection Risk

The risk that the auditor's procedures will not detect a misstatement that exists in an assertion that could be material, individually or in combination with other misstatements.

SA 315 (Identifying and Assessing the Risk of Material Misstatements through Understanding the Entity and its Environment)

Introduction

Scope of this Standard on Auditing (SA)

This Standard on Auditing (SA) deals with the auditor’s responsibility to identify and assess the risks of material misstatement in the financial statements, through understanding the entity and its environment, including the entity’s internal control.

Effective Date

This SA is effective for audits of financial statements for periods beginning on or after April 1, 2008.

Objective

The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels, through understanding the entity and its environment, including the entity’s internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement. This will help the auditor to reduce the risk of material misstatement to an acceptably low level.

SA 320 (Materiality in Planning and Performing an Audit)

Introduction

Scope of this Standard on Auditing (SA)

This Standard on Auditing (SA) deals with the auditor’s responsibility to apply the concept of materiality in planning and performing an audit of financial statements. SA 4503, explains how materiality is applied in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements.

Effective Date

This SA is effective for audits of financial statements for periods beginning on or after April 1, 2010.

Objective

The objective of the auditor is to apply the concept of materiality appropriately in planning and performing the audit.

SA 330 (The Auditor's Responses to Assessed Risk)

Introduction

Scope of this SA

This Standard on Auditing (SA) deals with the auditor’s responsibility to design and implement responses to the risks of material misstatement identified and assessed by the auditor in accordance with SA 315, “Identifying and Assessing Risks of Material Misstatement Through Understanding the Entity and Its Environment” in a financial statement audit.

Effective Date

This SA is effective for audits of financial statements for periods beginning on or after April 1, 2008.

Objective

The objective of the auditor is to obtain sufficient appropriate audit evidence about the assessed risks of material misstatement, through designing and implementing appropriate responses to those risks.