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Audit risk

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Audit risk

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Kim Smith.
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  • July 5, 2021 at 8:39 am #627003
    aarti2407
    Member
    • Topics: 36
    • Replies: 8
    • ☆

    Dear ma’am,

    the definition of audit risk is: “Audit risk is the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.”

    So, does this mean that when an auditor gives a modified opinion for FSs which are free from material misstatements, that is not audit risk?

    thank you so much!

    July 5, 2021 at 6:56 pm #627033
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6787
    • ☆☆☆☆☆

    In the main, audit risk is saying the financial statements “present fairly/show a T&F view” – when they don’t. I.e. expressing an unmodified opinion when it should have been modified.

    In theory it also includes expressing a modified opinion when it should be unmodified. This really doesn’t happen in practice! If the auditor says to management “we are going to modify the opinion because [this material is not recoverable and you haven’t made an allowance for it – so trade receivables are overstated” – if management believes that there is no misstatement because the debt is recoverable, it is for management to provide additional evidence to the auditor to show that is the case.

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