Risks in Audit and Their Assessment

Abstract

Audit activities involve the existence of various risks having implications for a final auditor’s judgment. As a risk can never be reduced to zero, the auditor’s task is in its minimization. The purpose of the study is to analyze the audit risks and methods for their assessment when planning audits of financial reporting, systematization of the auditor’s actions in view of the existing risks, and identification of potential risks.

Factors affecting the level of the audit risk are outlined; the principal task of an auditor is highlighted. The audit risk and its components (inherent risk, control risk, detection risk) are defined. The algorithm for audit risk assessment on the basis of factor model, the potential effect of the audit risk for subsequent selection and use of auditor procedures, for the number of audit evidences and methods of their obtaining are shown. The existence of inverse relationship between the detection risk and the totality of inherent risk and control risk is shown.

Because the audit risk is a criterion for quality of auditor’s work, its estimates and factors should be part of the audit strategy. The algorithm for evaluating the audit performance at the phase of audit planning is shown.

The conclusion is made that the stronger is the system for internal control with an entity subject to audit, the weaker emphasis is needed on detailed tests. The weaker are the evidences obtained from assessment of the efficiency of the internal control with an entity subject to audit, the more comprehensive should be audit, to have the audit risk minimized.