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Hello. I am not sure how the components of audit risk are related? I am unable to clearly understand the concept on how the components of audit risk are related to materiality level and which will then result in lesser scope of work.
Please Help.
Thank You
The lower the perceived risk, the higher the auditor can fix materiality and that will lead to a reduction in the extent of testing.
But the auditor can only determine levels of risk by assessing inherent and control risks.
There’s not a lot you can do about inherent risk – it’s inherent! It exists. Isn’t the Latin expression something like “id ergo sum” I think, therefore I am? ( I’m not a classicist and no doubt someone will write in to correct me! )
However, control risk CAN be addressed by the company instituting stronger and stronger ( and therefore more reliable ) controls. That will reduce the level of control risk in the assessment of the auditor who may then feel justified in increasing materiality levels and therefore reducing the extent of texting
Does that address your question?
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