Audit

Front 1

Materiality

Back 1

the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.

Front 2

Audit Risk

Back 2

the risk that the auditor may unknowingly fail to appropriately modify the auditor's opinion on financial statements that are materially misstated

Front 3

Inherent risk (IR)

Back 3

the susceptibility of an assertion to material misstatement, assuming no related internal controls

Front 4

Control Risk (CR)

Back 4

the risk that material misstatements that could occur will not be prevented or detected by the internal controls

Front 5

Detection Risk (DR)

Back 5

the risk that the auditor will not detect a material misstatement that exists in the financial statements

Front 6

How does RMM differ from DR

Back 6

they exist independently of the audit of financial statements, whereas detection risk relates to the auditor's procedures and can be changed at the auditor's discretion

Front 7

Relationship of RMM and DR

Back 7

Detection risk has an inverse relationship to inherent and control risk

Front 8

How is Materiality affected

Back 8

affected by the nature and amount of an item in relation to the nature and amount of items in the financial statements under examination, and the auditor's judgment as influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements. A number of qualitative factors also affect materiality.