00:03
As an audit partner, the assessment of the audit risk for both clients, abc company and 123 corp will be influenced by various factors.
00:13
Audit risk is the risk that the auditor expresses in an inappropriate audit opinion when the financial statements contain material misattainments.
00:22
It comprises inherent risk, control risk, and detection risk.
00:27
So assessment of the audit risk for abc company.
00:32
First is the assessment of audit risk for abc company.
00:48
First is the inherent risk.
00:57
So the poor performance, negative industry reports, declining stock price, and implementation of a new erp system increase the inherent risk for abc company.
01:06
So these factors indicate a higher likelihood of material misstatements in the financial statements.
01:14
Second is the control risk.
01:21
The departure of a key employees and a poor performance may affect the effectiveness of the internal controls at abc company.
01:29
Control risk is likely to be higher, indicating a higher risk that controls may not prevent or detect material misstatements.
01:38
Then is the detection risk.
01:48
So given the increased inherent and control risk, the auditor would need to plan higher, substantive testing to reduce detection risk and provide reasonable assurance that materials misstatements, if any, are detected.
02:01
Next is the assessment of audit risk for assessment of audit risk for 123 corp.
02:23
First is the inherent risk.
02:30
Since 123 corp has been performing well and has not historically had misstatements, the inherent risk is relatively low...