Managing group audit risk in a multicomponent audit setting

Abstract

This paper considers the challenges in planning the scope of auditing procedures in a group audit setting for an entity with geographically dispersed components which vary in risk characteristics. Auditing all the components for a complex group entity is often infeasible, hence the auditor faces risk from components not audited, as well as the normal sampling risk resulting from applying audit procedures to certain components. Auditing standards do not explain how to consider the risk factors and consider what portion of a multiple component entity should be selected for audit to be able to issue an unqualified audit opinion on the group. In this paper we describe a step‐by‐step method for determining a minimum number of component audits needed to support an aggregate low level of audit risk of material misstatement. The paper responds to calls from academics, practitioners, and standards‐setters for theoretically valid and practically feasible solutions to the group audit problem, using a method that combines professional judgment and experience with basic statistical principles in an ensemble approach.

Assurance process for sustainability reporting: Towards a conceptual framework

“…Consultancies usually apply a diversified approach, employing methods such as risk assessment, social analysis, interviews, media analysis and control of stakeholder processes (Channuntapipat et al, 2019;Mendes et al, 2019;Ruiz-Barbadillo & Martínez-Ferrero, 2020). In contrast, the assurance approach for an accounting auditor is less diversified, and strives to follow a replicable procedure, drawing on inquiry, observation, inspection, computation, and analysis (Boiral et al, 2018;Channuntapipat et al, 2019), which lower the risks such as time constraints, detection risks and control risks (Albersmeier et al, 2009;Graham, 1985;Lamberton, 2005;Wallage, 2000). An accounting auditor may use the same assurance procedure for different reporting firms Deegan et al, 2006;Reimsbach et al, 2018).…”

Comments of the AFAANZ Auditing and Assurance Standards Committee on Proposed International Standard on Auditing 600 (ED 600)

“…We also note, with reference to the extant literature, the challenges in recognising and responding to risks arising from quantitatively non-significant components and qualitative factors (Graham et al, 2018;Backof et al, 2020). Graham et al (2018) suggest that statistical sampling principles can be applied to achieve additional comfort when selecting non-significant components for which audit procedures will be performed.…”

“…We also note, with reference to the extant literature, the challenges in recognising and responding to risks arising from quantitatively non-significant components and qualitative factors (Graham et al, 2018;Backof et al, 2020). Graham et al (2018) suggest that statistical sampling principles can be applied to achieve additional comfort when selecting non-significant components for which audit procedures will be performed. We recommend that additional explanatory and application material relating to paragraph 33 (under scoping of a group auditcurrently paragraphs A86-A90) be included to recognise the potential for sampling (and the provisions of ISA530) to be employed in terms of scoping-in smaller non-significant components in order to manage audit risk.…”

An Audit Risk Model Based on Improved BP Neural Network Data Mining Algorithm

“…On the one hand, there are errors in the data of the various types of accounting information represented by the financial report that are caused by the audited entity itself for various reasons [3][4][5]. On the other hand, there are inappropriate audit opinions resulting from the auditor's failure to detect errors in accounting information [6][7][8][9]. Sinaga and Emirzon pointed out that audit risk includes not only the traditional risk of the auditor issuing an inappropriate audit opinion due to misstatements but also the risk of civil and criminal liability arising therefrom [10].…”