While conducting the audit of X-ray Limited, Mr. Pratap, the statutory auditor found that the detection risk relating to certain transactions cannot be reduced to acceptable level. As a Statutory Auditor, how would you deal in the given situation?

Auditing and Assurance Revision Questions and Answers

Answer
The auditor should use professional judgment to assess audit risk and to design audit procedures to ensure that it is reduced to an acceptably low level.
“Detection risk” is the risk that an auditor‟s substantive procedures will not detect a misstatement that exists in an account balance or class of transactions that could be material. The higher the assessment of inherent and control risks, the more audit evidence the auditor should obtain from the performance of substantive procedures. When both inherent and control risks are assessed as high, the auditor needs to consider whether substantive procedures can provide sufficient appropriate audit evidence to reduce detection risk, and therefore audit risk, to an acceptably low level. The auditor should use his professional judgments to assess audit risk and to design audit procedures to ensure that it is reduced to an acceptably low level.

If it cannot be reduced to an acceptable level, the auditor should express a qualified opinion or a disclaimer of opinion as may be appropriate.



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