Write short notes on Risk Based Auditing.

Auditing and Assurance Revision Questions and Answers

Answer

Risk-based auditing is an approach resorted to the auditors with a view to avoid over-auditing in a low-risk situations and under-auditing in the high-risk situations, thereby, wasting much of the valuable time or exposing himself to the high risk of material misstatement going unnoticed. Under the risk-based auditing approach, the auditor attempts to plan his audit work on the basis of his assessment of the potential risk of existence of material errors, discrepancies, etc. In the financial statements as a whole as in specific accounts, transactions and balances. The approach suggests that in designing an audit programme, the assessment of the risk involved in a situation is the most important criteria to be

considered as it affects nature, timing and extent of the audit procedures. Where the auditor‟s assessment shows a potentially low-risk in a particular situation, the extent of auditing procedures may be scaled down as considered appropriate under the circumstances. In situations characterized high-risk, auditing procedures should be made more elaborate and thorough.



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