Question

1. List the various types of risks associated with auditing. 2. Explain the audit risk model and the appropriate level of risk. 3. What are the contents and purposes of the audit strategy memorandum?

Answer 1

audit risk refers to the an ability of order to obtain evidences to detect material misstatement due to fraud or errors and he gives and wrong opinion about the financial statement.

The various types of risk associated with auditing are.

1. Inherent risk: risk of suscepitibility of material misstatement in aggregate or in individual at assertion level of accounts, transaction.
2. Control risk: when the internal control system of an organisation is not able to detect or prevent a risk of potential misstatement is called control risk
3. Detection risk: when the audit procedure used by the auditor unable to detect material misstatement.

2.Audit risk model
Audit risk model gives an auditor an understanding about the various risks available at an audit engagement.
It also allows the auditor to determine the amount of risk present in an audit. The audit risk model helps the auditor to reduce the risk of material misstatement to an acceptable low level.
The audit risk model provides the auditor to form an relationship between the available risk and the action to be taken by the auditor to reduce the overall risk.

The elements of an audit risk model are :

• Control risk
• Detection risk  
• Inherent risk.

3. Audit statergy memorandum
An audit strategy memorandum give the path and scope for an audit to be conducted by an auditor

It is used by the auditor for auditing each and every organisation as it is considered as a format of auditing report which is presented by the auditor .

It could be relatively short or long depending upon the size of organisation.
Sometimes, the audit strategy plays an important role in formation of audit strategy memorandum as the strategies are changed with the change in outcomes of audit procedures.

The purpose of audit strategy memorandum

1. Briefing of audit approach
2. Summarising audit risk and areas
3. Give details of audit team.

Contents of audit strategy memorandum are:

1. Scope of engagement
2. Management responsibility
3. Auditor's responsibility.
4. Auditor's opinion.
5. Findings or outcomes of audit.