Assessing Materiality and Risk

Satisfactory Essays
• Why is materiality allocated only to those accounts that are sampled?
An auditor needs to consider planning the audit and evaluating financial statements with the generally accepted accounting principles regulations. If an entity is considered less material to financial users then it is considered to be a materiality entity. Under the materiality principle, certain accounting standards may be ignored if it does not conflict a readers understanding on a financial statement. The total asset of an item will determine if the item should be included in the balance sheet and this item would be identified as material.
• Is any component of audit risk within the control of the auditor? Explain.
Audit risk is considered to be the risk of the misstated unknown information an auditor may retrieve. The assertion of an auditor and the auditor’s opinion will determine the risk level. Inherent risk provides an assertion to a material misstatement with the results of no controls. There are several procedures and auditor can provide to determine a level of inherent risks. Control risk is considered a risk when a misstatement occurs with a short amount of time to be identified by the entity’s internal controls. Managing a productive internal control will help reduce the risk level.

• Why is materiality allocated only to those accounts that are sampled?
An auditor needs to consider planning the audit and evaluating financial statements with the generally accepted accounting principles regulations. If an entity is considered less material to financial users then it is considered to be a materiality entity. Under the materiality principle, certain accounting standards may be ignored if it does not conflict a readers understanding on a financial statement. The total asset of an item will determine if the item should be included in the balance sheet and this item would be identified as material.
• Is any component of audit risk within the control of the auditor? Explain.

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