Auditing Ch 9 Materiality And Risk

Front 1

Acceptable audit risk

Back 1

measure of how willing the audit is to accept that the fs may be materially misstated after audit is completed and an unqualified opinion has been issued

Front 2

Allocation of preliminary judgement about materiality

Back 2

process of assigning to each balance sheet acct the misstatement amt ot be considered material for that acct based on the auditor's preliminary judgement

Front 3

Audit Risk Model
PDR = AAR / (IR x CR)

Back 3

formal model reflecting the relationships between acceptable audit risk (AAR), inherent risk (IR), control risk (CR) and planned detection risk (PDR); PDR = AAR/(IRxCR)

Front 4

Control Risk

Back 4

measure of auditor's assessment of the likelihood that misstatements exceeding a tolerable amt in a segment will not be prevented or detected by the client's IC

Front 5

Direct Projection Estimate of Misstatment

Back 5

estimate of likely missatement in a population based on a sample, excluding sampling risk, and calculated as net misstatments in the sample, divided by the total recorded population value

Front 6

Engagement Risk

Back 6

risk that the auditor will suffer harm because of a client relationship, even though the audit report rendered the client was correct

Front 7

Inherent Risk

Back 7

measure of auditor's assessment of liklihood that there are material misstatements in a segment before considering the effectiveness of the IC

Front 8

Known Misstatements

Back 8

specific misstatements in a class of transactions or acct balance ID'ed during the audit

Front 9

Likely Misstatements

Back 9

misstatement that arise from either differences between mgmt's and the auditor's judgement about estimates of acct balances or from projections of mistatements based on the auditor's test of a sample from a population

Front 10

Materiality

Back 10

magnitude of an omission or misstatement of accounting info that, in the light of surrounding circumstances, makes it PROBABLE that the judgement of a reasonable person relying on the info would have been changed or influenced by the omission or misstatment

Front 11

Planned Detection Risk

Back 11

measure of the risk that audit evidence for a segment will fail to detect misstatments exceeding a tolerable amount, should such misstatement exist:
PDR = AAR / (IR x CR)

Front 12

Preliminary Judgement About Materiality

Back 12

the maximum amount by which the auditor believes that the stmts could be misstated and still NOT affect the decisions of reasonable users, used in audit planning

Front 13

Revised Judgement About Materiality

Back 13

a change in the auditor's preliminary judgement made when the auditor determines that the preliminary judgement was too large or too small

Front 14

Risk

Back 14

the acceptance by auditors that there is some level of uncertainty in performing the audit function

Front 15

Risk of Material Misstatement

Back 15

the combination of inherent risk and control risk (IR x CR)

Front 16

Sampling Error

Back 16

results because the auditor has sampled only a portion of the population

Front 17

Tolerable Misstatement

Back 17

the materialty allocated to any given acct balance used in audit planning