Question

we can probably all agree that risk assessment during the planning phase of the audit is important because that assessment determines the auditor’s planned procedures to address assessed risk. But, what are the implications if the audit team “gets it wrong” and assesses client risks inaccurately-either too low or too high?

Answer 1

Risk assessment is a crucial part of quality audit. Identifying and assessing a client's specific risk drives the audit procedure one must perform and helps identify areas of high risk of material misstatements. If the audit team gets it wrong, and assesses client risk too high, it will lead to inefficient over-auditing and thus wastage of valuable resources. Even more so, if the risk is assessed wrongly as too low, it will lead to a failure in obtaining sufficient and appropriate evidence to support your opinion.