Question

Urgent Medical Inc, KPMG

Based on the case materials, explain the audit risk model for the sales and accounts receivable cycle on this engagement (AAR= IR x CR x DR). Specifically, state how the audit firm has assessed IR and CR, and how this impacted the detection risk and audit testing.

Answer 1

The auditing always involves a risk of detection and testing risks. They are the integral part of any audit.

The auditor should try to reduce the risk by performing the audit proceedures in such a way that sufficient and appropriate audit evidence should be obtained. There is no way that Auditor can avoid the risk because it is the time constraint the main reason for existence of frauds even after proper examination of the books and other affairs of the company. Auditor with his report is only liable limited.