Audit managers must make several difficult decisions while planning complex audit engagements and can therefore benefit from the development of a structured methodology to assist in managing the risks associated with the audit planning process. The Information Systems Audit and Control Association (ISACA, 2000) confirms the need for guidelines to assist auditors in expressing an accurate opinion of the financial statements and detecting errors in audit areas. The traditional audit risk model (Woodhead, 1992; Kanter and Pitman, 1995; Dusenbury et al, 2000), which places risk factors into three broad categories viz. inherent risk, control risk, and detection risk, can provide some guidance to audit professionals.
Colbert and Weirich (2006) discuss the eight new Statements on Auditing Standards (SASs) developed by the AICPA. These new standards provide guidance for applying the traditional audit risk model and provide a framework for planning audit engagements. Some of the key issues addressed by the new standards include the meaning of reasonable assurance, audit risk and the risk of material misstatement, materiality and tolerable misstatement, financial statement assertions, internal control, information technology and audit evidence. The new standards also detail audit procedures such as observation, inquiry, confirmation, recalculation, performance and analytical procedures which may be used in tests of controls and substantive procedures. Read more..
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