Measuring Audit Risks

SAS No. 122, AU 300.04 states that the objective of the auditor is to plan the audit so that it will be performed in an effective manner. One may also say that the audit should be performed in an efficient manner. That is to say, you want to do as much work as you should but you do not want to do more than you should or not as much as you should. That is to say, you don't want to over or under audit.

This program is an overview or SAS No. 122, AU 300 related to the auditor's responsibility to plan the audit so that it will be performed in an effective (and efficient) manner. In order to do so, one must know where the areas are that may result in a risk of material misstatement. We determine this by the evaluation of internal controls relate to financial statement presentation. During this program, we will look at various areas and determine if there is sufficient risk to perform substantive test to reduce the risk to an acceptable level. We must remember not that each substantive procedure performed during must be able to be linked to the reduction of a perceived risk of a material misstatement. If we are unable to establish such a link, the substantive test has no informational content and cannot be justified.

The degree of substantive testing that an auditor performs should be based on risks of a material misstatement. Risks are often made up of a combination of things. Two of the most common risks are lack of a proper segregation of duties and week internal controls. However, if either or both of these risks are in areas where they could not result in a material misstatement of the financial statements, the auditor need not perform any substantive tests in the area.


Define audit risks
Measuring audit risks
Analyzing a material weakness
Comparing a material weakness to a significant weakness
Evaluating the control environment



Additional Information

Designed For

External and internal auditor, fraud examiners



Advanced Preparation



2.00 Auditing



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