Audit Risk and Planning

These flashcards cover essential concepts and vocabulary related to Audit Risk and Planning.

Audit Risk

The risk that an auditor expresses an inappropriate opinion on materially misstated financial statements.

Risk of Material Misstatement (RMM)

The risk that financial statements may contain material misstatements prior to the audit.

Inherent Risk (IR)

The susceptibility of an assertion to material misstatement, before considering the effectiveness of internal controls.

Control Risk (CR)

The risk that a material misstatement could occur in an assertion and not be prevented or detected by the client's internal controls.

Detection Risk (DR)

The risk that audit evidence for an audit objective will fail to detect misstatements exceeding performance materiality.

Acceptable Audit Risk (AAR)

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit.

Audit Risk Model (ARM)

A model used by auditors to decide how much and what types of evidence to accumulate for each relevant audit objective.

Planned Detection Risk (PDR)

Likelihood that audit procedures fail to detect material misstatements; lower PDR means more audit evidence is needed.

Fraud Risk

The risk of material misstatements in financial statements due to fraudulent activities.

Engagement Risk

The risk that the auditor will suffer harm after the audit report is issued, even if the report is correct.