Auditing tute 4:Assessing specific business risk and Materiality

1. Inherent risk: susceptibility of an account balance or class of transaction to material misstatement given inherent and characteristics of environment without regard to internal control. 2. Why risks concerning fraud important to audit plan?
Intentional act to get illegal advantage of in charged people.
Intrinsically difficult to detect.
Can have a greater risk of fraud due to the nature of an item (cash) or changing conditions (recession).
--> respond to risk controlling planned detection risk through determination of nature, timing, extent of auditing procedures.
3. What is earnings management? Give an example?
Use of judgement or structure of transactions to influence perceptions of who reading. Who engaging in earnings management will not reflect the underlying economic realities.
4. With referece to Going concern, compare the responsibilities of an auditor to those of management.
Going concern is fundamental premise of accrual accounting. An entity will continue its operation and pay the debt when it falls due

Management: must consider appropriateness of going concern
They have some factors: size and complexity of operations, availability of information and uncertainty level of present.

Auditor:
1. Consider the judgement of management
2. Alert during planning stage
3.
4. Doubt --> solve doubt
5. Assumption valid okie, uncertainty to misstatement disclose unqualified report, uncertainty, undisclosed adverse warranted.
6.


5. Inherent Risk
At FR level
At Assertions level.