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A key aspect of audit planning is the assessment of audit risk. Audit risk is the one that leads to material misstatements will exist in the financial statements and will not be detected by our audit procedures. The audit risk consists of:
Inherent risk is the susceptibility of an assertion to material misstatement, assuming there are no related internal controls.
Control risk is the risk that a material misstatement in an assertion will not be prevented or detected on a timely basis by the internal control policies or procedures. It is a function of the effectiveness of the design and operation of the internal controls.
Detection risk is the risk that material misstatements existing in an assertion will not be detected by our audit procedures.
Our audit approach requires us to control the risk that our audit opinion is incorrect. We do this by applying an audit risk model to critical assertions within critical transaction cycles to ensure that we obtain adequate audit evidence to support our opinion.
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