The Audit Risk Model: Understanding Foundational Principles

Learning Objectives

• To discuss the basis for an audit.
• To explain the auditor’s professional responsibilities.
• To describe important audit concepts, such as materiality.
• To explain the foundational principles of the audit risk formula.
• To discuss considerations when identifying and assessing the risk of material misstatement.

Course Description

An audit risk model is a conceptual tool applied by auditors to evaluate and manage the various risks arising from performing an audit engagement. The tool helps the auditor decide on the types of evidence and how much is needed for each relevant assertion. 

The audit risk model indicates the type of evidence that needs to be collected for each transaction class, disclosure, and account balance. It is best determined during the planning stage and only possesses little value in terms of evaluating audit performance. 

The three basic components of an audit risk model are: 

1. Control Risk
2. Detection Risk
3. Inherent Risk

Managing all these components of the audit risk model isn’t easy. 

The audit risk model has been designed to help businesses identify the problems that can occur in audits. Many major accounting-related scandals highlight the importance of these audits. Enron is perhaps the most well-known auditing scandal – and all three of these risks show up in the Enron scandal. 

Major Topics Covered in this CPE Auditing Webinar: 

• Understanding the Purpose of Financial Statement Audits
• Overview of Financial Reporting Frameworks
• Roles and Responsibilities in Audits
• Distinguishing Management and Auditor Responsibilities
• Phases of the Financial Statement Audit Process
• Examination of Audit Risk, Materiality, and Assertion-Level Risks

Join this CPE course to understand the Foundational Principles of the Audit Risk Model. 

Click here to access CPE Courses for Certified Internal Auditors.

Overview

• Why would be liable to an Audit?

  3 mins
• What is a Special purpose framework?

  10 mins
• Phase of an Audit

  28 mins
• Two levels of Audit risk assessment

  44 mins
• Inherent Risk - The freebie

  68 mins
• Two final variations of inherent risk

  83 mins
• How risk assessment is documented

  94 mins