In any audit participation – it’s mandatory to identify substantial risk that is unique to individual engagement as required by global quality of auditing. The substantial risk identified requires auditors’ special factor in designing and executing the audit processes.
For instance, for active business, the auditor can be aware that the revenue might not be recorded in proper period since there may be incentive for management to overstate the earnings. Given that the oil price will be at low end cycle, there might be danger the gas & oil audit client might understate their supply for any onerous contract.
In summary, it’s crucial to develop a robust understanding of the audit client (including: business environment, settlement package of direction , etc) to determine significant risk.
When a matter is identified as significant risk – auditors will need to design analysis response that requires special consideration – i.e. carry… Read More