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December 1983 AICPA American Institute of Certified Public Accountants Audit Risk and Materiality in Conducting an Audit 1. This Statement provides guidance on the auditor's consideration of audit risk and materiality when planning and performing an examination of financial statements in accordance with generally accepted auditing standards. Audit risk and materiality affect the application of generally accepted auditing standards, especially the standards of field work and reporting, and are implicit in the auditor's standard report. Audit risk and materiality, among other matters, need to be considered together in determining the nature, timing, and extent of auditing procedures and in evaluating the results of those procedures. 2. The existence of audit risk is implicit in the phrase " in our opinion." Audit risk1 is the risk that the auditor may unknowingly fail to appropriately modify his opinion on financial statements that are materially misstated. 2 1In addition to audit risk, the auditor is also exposed to loss or injury to his professional practice from litigation, adverse publicity, or other events arising in connection with financial statements that he has examined and reported on. This exposure is present even though the auditor has performed his examination in accordance with generally accepted auditing standards and has reported appropriately on those financial statements. Even if an auditor assesses this exposure as low, he should not perform less extensive procedures than would otherwise be appropriate under generally accepted auditing standards. 2This definition of audit risk does not include the risk that the auditor might erroneously conclude that the financial statements are materially misstated. In such a situation, he would ordinarily reconsider or extend his auditing procedures and request that the client perform specific tasks to reevaluate the appropriateness of the financial Copyright © 1983 by the American Institute of Certified Public Accountants, Inc. 1211 Avenue of the Americas, New York, N. Y. 10036- 8775 1234567890 AudS 89876543 Statement on Auditing Standards Issued by the Auditing Standards Board 47