Finance

Have Finance Questions? Ask a Financial Expert Online.

Ask an Expert,
Get an Answer ASAP!

Finance
This answer was rated:

a) Why do certain accounts have to be audited 100% b) Why

a) Why do certain accounts...
a) Why do certain accounts have to be audited 100%?
b) Why is materiality allocated only to those accounts that are sampled?
c) Is any component of audit risk within the control of the auditor? Explain.
d) How are the three risks that make up audit risk inter-related?
Show More
Show Less
Ask Your Own Finance Question
Answered in 1 day by:
5/31/2010
John Mark
John Mark, Accountant
Category: Finance
Satisfied Customers: 842
Experience: ACCA
Verified

a) Why do certain accounts have to be audited 100%?

Accounts need to be audited so that other people can rely on that information and make correct decisions for investment, Further it helps the company management to get ensured that company is running profitable and according company is following the correct Accounting standards and policies. It helps the management to ensure that their accounts depict the true and fair view.

Auditing is done to protect the investors, shareholders, and banks to give reassurance that the information given to them by management is correct.

b) Why is materiality allocated only to those accounts that are sampled?

The Financial Accounting Standards Board (FASB), defines it in statement of

Financial Concepts No. 2., that ..” "materiality represents the magnitude of an

omission or misstatement of an item in a financial report that, in light of

surrounding circumstances, makes it probable that the judgment of a

reasonable person relying on the information would have been changed or

influenced by the inclusion or correction of the item".

[refer:- www.gao.gov/special.pubs/famv1_.pdf].

The objective of an audit of financial statement is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework.

Items of little importance, which do not affect the judgment or conduct of a reasonable user, do not require auditor investigation. Conversely, Items of more importance that may matter such a judgment require auditor attention.

In designing the audit plan the auditor establishes an acceptable materiality level so as to detect quantitatively material misstatements. However, both the amount (quantity) and nature
(quality) of misstatements need to be considered.

Normally only accounts that matter will be sampled for any type of checking, and thus materiality allocated only to those accounts that are sampled.

Secondly, an auditor for the sake of thoroughness will allocate materiality to everything he samples. Just to be sure that no account is ignored or given less weightage and thus escapes his view.

This is with respect to its planned nature, its timing, and its extent.

c) Is any component of audit risk within the control of the auditor? Explain.

Audit Risk has 3 components namely Inherent Risk, Control Risk and Detection Risk. Among this three components, Detection Risk is within the control of the auditor. This means that if the detection risk is high, the auditor is willing to accept a high detection risk, and will do less substantive testing as compared to a situation where the detection risk is lower. It is important to note that while detection risk can be modified at the auditor's discretion, inherent risk and control risk exist independently of the audit.

d) How are the three risks that make up audit risk inter-related?

The overall audit risk is the risk that the auditors give an inappropriate opinion on the financial statements. Audit risk has two elements, which are:

· The risk that financial statement contain a material misstatement, and

· The risk that auditors will fail to detect any material misstatements

Audit risk is a combination of inherent, control and detection risk.

The risk of material misstatement is subdivided into inherent risk and control risk, while failure of auditors to detect material misstatements is known as detection risk.

The three risks are interrelated in that if the inherent risk is high, it means that the business is susceptible to material misstatement, in which case, it may give rise to higher control risk and therefore a higher detection risk, since some material misstatements may get undetected in a poor control environment.

John Mark
John Mark, Accountant
Category: Finance
Satisfied Customers: 842
Experience: ACCA
Verified
John Mark and 87 other Finance Specialists are ready to help you
Ask your own question now
Ask John Mark Your Own Question
John Mark
John Mark
John Mark, Accountant
Category: Finance
Satisfied Customers: 842
842 Satisfied Customers
Experience: ACCA

John Mark is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Rakhi Vasavada

Rakhi Vasavada

Financial and Legal Consultant

2,608 satisfied customers

Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years

Megan C

Megan C

Certified Public Accountant (CPA)

2,218 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Manal Elkhoshkhany

Manal Elkhoshkhany

Tutor

1,920 satisfied customers

More than 5000 online tutoring sessions.

JKCPA

JKCPA

CPA

844 satisfied customers

Bachelors degree and CPA with Accounting experience.

Eric

Eric

Financial Manager

559 satisfied customers

Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

R. Klein, EA

R. Klein, EA

Accountant

480 satisfied customers

TurboTax Expert. QuickBooks Certified Pro Advisor

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

332 satisfied customers

NASD Licensed Rep, 1997-2001, Business Attorney

< Previous | Next >

Related Finance Questions
I run a US based LLC and am unsure what transactions I can
I run a US based LLC and am unsure what transactions I can put on our company card that are kosher for the IRS.For instance, can I include company dinners with employees or prospects on it? Can I incl… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,280 satisfied customers
When applying for a student loan financial aid, how much
When applying for a student loan financial aid, how much does your credit score play in the decision and what if you have a bankruptcy ??… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
Thanks for the quick turn around. question how are gifting
Thanks for the quick turn around. A follow up question how are gifting cryptos in 2017 taxed? I bought few litecoins and the value appreciated . I transferred the litecoins to my Brother as i owe him … read more
Carter McBride
Carter McBride
LLM
247 satisfied customers
I operate a small LLC that provides wedding officiant
Hello. I operate a small LLC that provides wedding officiant services. The LLC is in North Carolina and I now live in California. My two adult children have been helping me by officiating some wedding… read more
taxmanrog
taxmanrog
Master\u0027s Degree
775 satisfied customers
I received a lump sum distribution from Social Security in
I received a lump sum distribution from Social Security in December 2017 for the time period since I turned 66, April 12, 2016, because I have just filed. I chose the lump sum distribution over the in… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I live in Vermont. I have a pension being a State of Vermont
I live in Vermont. I have a pension being a State of Vermont employee. I want to get my social security in 4 months when I'm 62. How much do I pay in taxes with combing both of them … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Bookkeeping for a Personal Injury Attorney Some bills they
Bookkeeping for a Personal Injury AttorneySome bills they receive are for their client's costs that won't be paid until settlement (some times a year later). What makes the most sense for how/where to… read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
505 satisfied customers
I have a tax question about New York City taxes. Can you
Hello! I have a tax question about New York City taxes. Can you help me? … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,074 satisfied customers
I am a REALTOR and I am doing my taxes. I have a commission
I am a REALTOR and I am doing my taxes. I have a commission split with my broker. Can I write the portion I split with my broker off on my taxes at all?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I own a small business and purchased a used car for the
I own a small business and purchased a used car for the business. Am I able to deduct the purchase of the used vehicle?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
California: EDD. I don't have any employees at the moment
California: EDD. I don't have any employees at the moment and let go of my payroll service. Could you please tell what form I need to file for the 4th quarter of 2017 & how to file it, mail, online et… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a Deleware corporation and two of our contractors
I have a Deleware corporation and two of our contractors aren't filling out W9's so we can file their 1099's. They are ignoring my emails. Can I say that filling out a W-9 is a legal requirement by Fe… read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
I have had a lot (about 3 pages worth) if cryptocurrency
I have had a lot (about 3 pages worth) if cryptocurrency transactions for 2017. (Fortunately everything is closed now), but how do I "match up" the purchases and sales for these various kinds of trans… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,074 satisfied customers
LLC expense question. I have an LLC through which I perform
LLC expense question.I have an LLC through which I perform consulting and project management.I am interested in attending a training seminar with an associate who has contracted with me before for thi… read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
Verview... I am an insurance broker and work for an
verview... I am an insurance broker and work for an insurance agency, however, because I am new to this I receive a salary and a w2, no commissions yet.I also have a consulting business that I perform… read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
I am partners with my wife in an unused LLC. We help design
I am partners with my wife in an unused LLC. We help design and developer medical products. We sometimes have products and projects that take money from investors to get the ball rolling and for that … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,074 satisfied customers
My husband & I are self employed and have always filed our
Second opinion] My husband & I are self employed and have always filed our tax return with my husband making all the income and I as a house wife. My concern is when it becomes time for social securit… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,074 satisfied customers
Lane, I have a question about solo 401K. I own an LLC (with
Hi Lane,I have a question about solo 401K. I own an LLC (with S-corp election) and I have a solo 401k account to which I contribute 54k (2017) yearly. My wife is a partner and owns 49% of the LLC. She… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x