Assessing Materiality and Risk Simulation
TEAM B
TEAM B
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Assessing Materiality and Risk Simulation
University of Phoenix ACC/491 Dwayne Thompson March 10, 2013
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Assessing Materiality and Risk Simulation
University of Phoenix ACC/491 Dwayne Thompson March 10, 2013
The objective of the audit of financial statements is to enable the auditor to express an opinion if the financial statements are prepared in accordance with an identified financial reporting framework. The reason that materiality is allocated to those accounts sampled because materiality represents the magnitude of an omission or misstatement of an item in a financial report. The three function of the audit risk are inherent risk (IR), control risk (CR), and detection risk (DR). Every level of audit risk has an opposite connection that exists between assessed levels of controls, inherent risk, and level of detection risk Why do certain accounts have to be audited 100%? Accounts need to be audited 100% so the users of the financial statements can rely on the information and be able to make decisions for investment purposes. It also helps management make sure the company is profitable as well as following rules and regulations of the accounting standards and policies. Auditing accounts are done to protect the investors, shareholders, banks, and to give assurance that the information is true and correct. Account types such as inventory, accounts payable, property, plant and equipment are not required to fully be audited as it is a time-consuming process. Accounts that are audited 100% are accounts most relevant to the industry that the company represents. Why is materiality allocated only to those accounts that are sampled? The Financial Accounting Standards Board (FASB), defines it in statement of
TEAM B
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Assessing Materiality and Risk Simulation
University of Phoenix ACC/491 Dwayne Thompson March 10, 2013
-------------------------------------------------
Assessing Materiality and Risk Simulation
University of Phoenix ACC/491 Dwayne Thompson March 10, 2013
The objective of the audit of financial statements is to enable the auditor to express an opinion if the financial statements are prepared in accordance with an identified financial reporting framework. The reason that materiality is allocated to those accounts sampled because materiality represents the magnitude of an omission or misstatement of an item in a financial report. The three function of the audit risk are inherent risk (IR), control risk (CR), and detection risk (DR). Every level of audit risk has an opposite connection that exists between assessed levels of controls, inherent risk, and level of detection risk Why do certain accounts have to be audited 100%? Accounts need to be audited 100% so the users of the financial statements can rely on the information and be able to make decisions for investment purposes. It also helps management make sure the company is profitable as well as following rules and regulations of the accounting standards and policies. Auditing accounts are done to protect the investors, shareholders, banks, and to give assurance that the information is true and correct. Account types such as inventory, accounts payable, property, plant and equipment are not required to fully be audited as it is a time-consuming process. Accounts that are audited 100% are accounts most relevant to the industry that the company represents. Why is materiality allocated only to those accounts that are sampled? The Financial Accounting Standards Board (FASB), defines it in statement of
References: Assertions, Audit Risk and Materiality. Bradley. Retrieved by Jamie Casey from http://www.hilltop.bradley.edu/~simon/atg457/chapter04.doc Austin Community College District. Detection Risk. Retrieved by Jamie Casey from http://www.austincc.edu/audit/glossary/d.php Boynton, W.C., & Johnson, R.N. (2006). Modern Auditing: Assurance Services and the Integrity of Financial Reporting (8th ed.), Hoboken, NJ: Wiley. Frats. The World of Risk. Retrieved by Jamie Casey from http://www.frats.com/essays/74742.html Oregon State University. Chapter 09-Materialtiy and Risk. Retrieved by Jamie Casey from http://www.classes.bus.oregonstate.edu/winter-06/ba427/ch9%20solutions.doc Phoenix Accountants. Materiality. Retrieved by Jamie Casey from http://www.phxaccountant.com/about/karpinski-and-jacobsen/ U.S. Government Accountability Office. Retrieved by Jamie Casey from http://www.gao.gov/special.pubs/famv1_.pdf University of Phoenix. (2013). Assessing Materiality and Risk Simulation. Retrieved from University of Phoenix, ACC491 website.