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The lower the audit risk, the higher the materiality will be set. In terms of the Conceptual Framework (see "materiality in accounting" above), materiality also has a qualitative aspect. This means that, even if a misstatement is not material in "Dollar" (or other denomination) terms, it may still be material because of its nature.
Audit risk (also referred to as residual risk) as per ISA 200 refers to the risk that the auditor expresses an inappropriate opinion when the financial statements are materiality misstated. This risk is composed of:
SAS 99 defines fraud as an intentional act that results in a material misstatement in financial statements. There are two types of fraud considered: misstatements arising from fraudulent financial reporting (e.g. falsification of accounting records) and misstatements arising from misappropriation of assets (e.g. theft of assets or fraudulent expenditures).
In the control testing stage, audit evidence is used by the auditor to consider the mix of audit test of controls and audit substantive tests. [9] In the substantive testing stage, audit evidence is defined as the information that the auditor needs to support the appropriation of financial statement assertions. [ 10 ]
No audit firm wants to have to explain to the press the loss of a big client. This gives the directors of the large company a commanding position over its audit firm and they may look to take advantage of it. The audit team would feel pressured to satisfy the needs of the directors and in doing so would lose their independence.
The success of an audit depends on the thoroughness with which vouching is done. After entering in all vouchers, only then can auditing start. Vouching is defined as the "verification of entries in the books of account by examination of documentary evidence or vouchers, such as invoices , debit and credit notes , statements, receipts, etc.
Quality audit is the process of systematic examination of a quality system carried out by an internal or external quality auditor or an audit team. It is an important part of an organization's quality management system and is a key element in the ISO quality system standard, ISO 9001 .