Audit Risk Model
Together, these characteristics comprise the risk of material misstatement.
Inherent risk and control risk
This body is responsible for setting the accounting standards for publicly traded companies in the U.S.
FASB
Auditors provide this type of assurance regarding financial statements.
Reasonable
These types of financial interests always impair a covered member's independence
This is the system of rules, practices, and processes by which a firm is directed and controlled.
Corporate Governance
This is the only part of the audit risk model that auditors can alter.
Detection risk
This body is responsible for setting the auditing standards for publicly traded companies in the U.S.
PCAOB
The risk that the auditor will provide an unqualified (clean) opinion on financial statements that are, in fact, materially misstated.
Audit Risk
This is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.
Professional skepticism
This is the group to which internal audit reports in order to optimize organizational independence.
Audit Committee
This describes the relationship between risk of material misstatement and detection risk, assuming audit risk is held constant.
Inverse
This is the body that creates accounting standards for public companies outside of the U.S.
IASB
This type of audit opinion would be issued by an auditor if there was a GAAP departure that affected the usability of the financial statements as a whole.
Adverse Opinion
This term describes a person on the attest team or in the position to influence the engagement and is instrumental in determining independence violations.
Covered Member
These are the parties to which an audit report is typically addressed.
Board of Directors and Shareholders
This describes the relationship between detection risk and the extent of substantive audit procedures.
Inverse
This body is responsible for setting the auditing standards for privately traded companies in the U.S.
AICPA Accounting Standards Board (ASB)
These are the standards that must be followed in conducting the audits of publicly (privately) traded companies.
PCAOB (GAAS)
This is how frequently the lead audit partner must rotate in the U.S. in order to maintain independence.
5 years
The passage of this law in 2002 changed the corporate governance landscape after the Worldcom and and Enron scandals of the early 2000s.
Sarbanes-Oxley Act of 2002 (SOX)
Detection risk is comprised of these two components
Sampling risk and nonsampling risk
This body is responsible for setting auditing standards for international companies.
IAASB (International Auditing and Assurance Standards Board)
This type of audit opinion would be issued by an auditor if there was a GAAP departure that affected only the account with the GAAP departure.
Qualified Opinion
This is how frequently the audit firm must rotate in the U.S. in order to maintain independence.
0 (firm rotation isn't a requirement in the U.S.)
This describes when management has more information about the entity's true financial position than do the absentee owners (i.e. stockholders).
Information Asymmetry