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Hi tutor,
How participation in services such as due diligence reviews and forensic investigations can allow the audit firm to reduce audit risk? Will it affect detection risk part?
The audit will be at lower cost and of higher quality will reduce detection risk?
Thanks for your comments.
“may” rather than “will”:
“Audit firms would also argue [i.e. others would argue the contrary!] that participation in services such as due diligence reviews and forensic investigations allows the audit firm to understand their clients’ business and risks better and to obtain insights into management’s objectives and capabilities which are useful in an audit context. This MAY reduce audit risk.”
See bottom of page 60 of the notes:
“… the only risk that the auditors can control is the detection risk. They
must do sufficient audit work to manage the overall audit risk.”So yes – it is only through the reduction of detection risk that audit risk can be reduced. And yes, audit quality directly affects detection risk (in particular non-sampling risk).
But lower cost concerns economy – not efficiency or effectiveness.
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