Audit Approach – Risk Based

Week -6
agung nugroho soedibyo
Syllabus

Audit risk and business risk :

1. Audit risk and financial statements
2. Audit risk and independent audit report
3. KAP quality control and audit risk
4. Financial statements relied by public

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 System Based Versus Risk Based Approach
The systems-based approach
This approach requires auditors to assess
The risk-based approach
the effectiveness of the internal controls
of an entity, and then to direct substantive In this approach, audit resources are directed
procedures primarily to those areas where it towards those areas of the financial statements
is considered that systems objectives will not that may contain misstatements (either by
be met. Reduced testing is carried out in those error or omission) as a consequence of the
areas where it is considered systems objectives risks faced by the business.
will be met

Why Risk Based Approach ?

 Audit Risk

• Audit risk is the risk of expressing an inappropriate audit opinion on financial

statements that are materially misstated.
• The objective of the audit is to reduce this audit risk to an acceptably low level.

Monday, September 25, 2023 agung nugroho soedibyo 5

Further
Audit
procedures
Risk Based Audit Approach
Inherent Limitation of an Audit
Inherent Limitation of an Audit
 KEY POINTS – p.168

• Business risk results from significant conditions,

events, circumstances, actions or inactions that
could affect the entity’s ability to achieve its
objectives.
• Business risk is broader than the risk of material
misstatement of the financial statements.
• Business risk may arise from change or
complexity or through a failure to recognize the
need for change.

Use
Use with The withProcess:
Audit The AuditPrinciples,
Process 4Practice
th
Editionand Cases
By Iain Gray
Third Edition & Gray
by Iain Stuart&Manson ISBN 9781844806782
Stuart Manson ISBN 1-86152-946-5
©© 2005
2008 Thomson
Cengage Learning
Learning
 ACTIVITY 5.2

Read the two definitions above and explain the

differences between audit risk and business risk
and state whether you can see a link between
them and why, giving examples. You should read
paras 30-35 of ISA 315 when doing this activity.

Use
Use with The withProcess:
Audit The AuditPrinciples,
Process 4Practice
th
Editionand Cases
By Iain Gray
Third Edition & Gray
by Iain Stuart&Manson ISBN 9781844806782
Stuart Manson ISBN 1-86152-946-5
©© 2005
2008 Thomson
Cengage Learning
Learning