“Minimizing Audit Risk” Please respond to the following:
- According to the text, auditors have to make judgments concerning materiality on every audit. Since the auditing standards give no formal guidance for how to determine materiality, auditors must rely on their own experience. Determine at least three (3) qualitative factors that affect the auditor’s judgment. Provide a rationale for your response.
- According to the text, auditors rely on the audit risk formula to determine the types and amount of audit evidence to collect in order to keep the overall audit risk of engagements to a minimum or below defined tolerable limits. Suggest an alternative to the audit risk equation in order to mitigate audit risk. Support your rationale with examples of the successful use of the alternative strategy.
Materiality is very important because in case financial statements misstated, materially, the decision of the user may be affected by a great deal. This would then result to financial harm. The preliminary judgment about materiality is often the maximum amount by which an auditor has come believe on the materials presented, due to misstatements. The qualitative factors to consider include, (1) a misstatement that changes….