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Chapter 9
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Topic Outlines
Materiality
Set preliminary judgement about materiality
Allocate preliminary judgement about materiality to
segment (tolerance misstatement)
Estimate misstatement and compare with
preliminary judgement
Types of risk
Assessing acceptable audit risk
Assessing inherent risk
Relationship of risk and evidence and factors
influencing risks
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Materiality
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Materiality
Auditors responsibility = determine whether
financial statements are materially misstated.
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Guidelines
Accounting and auditing standards do not
provide specific materiality guidelines.
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Risk
Auditors accept some level of
risk in performing the audit.
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= Inherent risk
CR
= Control risk
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Inherent
Risk
Control
Risk
Acceptable
Audit
Risk
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Engagement Risk
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Nature of Clients
Business
Companys operation
Non-routine transactions
Makeup of the population
Related parties
Audit Experience
Prior audit results
Initial vs. repeat engagement
Audit judgment required to
correctly record balances and
transactions
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Tutorial Week 10
Homework:
9-35 : Hashim Energy Corporation (3rd edition; page 267)
THANK YOU
-Frank Sinatra-
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