The risk of audit in the planning of the audit
Author:
University professor, PhD. Victor MUNTEANU
JEL:
DOI:
Keywords:
materiality, planning, assessment, evidences, errors
Abstract:
The fact that the auditors cannot guarantee the accuracy of the financial standings implies observations concerning the threshold of significance as well as the risk of audit which has the following definition: the risk according to which the auditor can change his opinion about the financial standings if they contain erroneous data.\r\n\r\nJust as the threshold of significance, the risk of audit can be divided in two:\r\n1. The total risk of audit, which refers to the financial standings as a whole;\r\n2. The individual risk of audit, which refers to each account of the balance sheet.\r\n\r\nThe first step which the auditors take is to consider the general risk of audit which they are ready to assume in order to certify the fidelity of the financial standings, when, in fact, the financial standings are denatured. There are few definitions about the level of the general risk of audit. In the Standards of audit it is mentioned that the audit must be planned so that the risk of audit be limited to a low level.\r\n\r\nThe risk of audit can be represented either in qualitative or quantitative terms. Quantitivity is used (for example 5 or 10 per cent) to illustrate concepts, although the qualitative strategy can be more frequently seen in practice.\r\n\r\nSince an audit includes the control of the accounts, one must take into consideration the general risk of audit planned by the allocation of the individual risk of audit for certain accounts. It is necessary to stress upon the fact that the Standards of Audit do not offer clear indications for this operation, leaving this problem entirely to the professional reasoning of the auditor.\r\n\r\nThe inherent risk, the risk related to control and the risk of not-detection. The auditors must estimate the effort of audit for each account according to the risk which they are ready to assume, so that there is the possibility that even by assuming the effort, they should not manage to discover existing errors in the account.\r\n\r\nThis is one of the auditors’ fears, namely not to omit an error which they need to have found.\r\nIn order to be able to understand the phenomenon, we need to divide the risk of audit of the accounts in three components: the inherent risk, the risk related to control and the risk of non-detection.