Q.1 What is the purpose of audit risk assessment? What are its objectives, and why is it important in assessing the likelihood that fraud may occur? Q.2 Distinguish between an auditor\'s responsibilities to detect and report errors, illegal acts, and fraud. What role does materiality have in determing the proper reporting and disclosure of such events? Solution Answer1. Risk Assessment is the identification and analysis of risks to the achievement of an organization\'s objectives, for the purpose of determining how those risks should be managed. Risk assessment implies an initial determination of operating objectives, then a systematic identification of those activities or events that could prevent a business unit from reaching its objectives.. In other words, it\'s an analysis of what could go wrong. Fraud is defined as the intentional false representation or concealment of a material fact for the purpose of inducing another to act upon it to his or her injury (as defined by the American Institute of Certified Public Accountants). Answer 2. Auditors have a responsibility to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error. -Should assess the RoMM(Risk of Material Misstatement ) whether from errors, illegal acts, or fraud during the planning phase -Provide reasonable assurance of detecting such misstatements -Use professional skepticism, a questioning mind, and critical analysis -Illegal Acts: auditors should focus on illegal acts that would have direct effects on the financial statements. indirect illegal acts require disclosure only and may result in fines and penalties -Materiality determines how much of a role the auditor should have in determining the proper reporting and disclosure of such events..

1. Q.1 What is the purpose of audit risk assessment? What are its objectives, and why is it
important in assessing the likelihood that fraud may occur?
Q.2 Distinguish between an auditor's responsibilities to detect and report errors, illegal acts, and
fraud. What role does materiality have in determing the proper reporting and disclosure of such
events?
Solution
Answer1.
Risk Assessment is the identification and analysis of risks to the achievement of an
organization's objectives, for the purpose of determining how those risks should be managed.
Risk assessment implies an initial determination of operating objectives, then a systematic
identification of those activities or events that could prevent a business unit from reaching its
objectives.. In other words, it's an analysis of what could go wrong.
Fraud is defined as the intentional false representation or concealment of a material fact for the
purpose of inducing another to act upon it to his or her injury (as defined by the American
Institute of Certified Public Accountants).
Answer 2.
Auditors have a responsibility to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to fraud or error.
-Should assess the RoMM(Risk of Material Misstatement ) whether from errors, illegal acts, or
fraud during the planning phase
-Provide reasonable assurance of detecting such misstatements
-Use professional skepticism, a questioning mind, and critical analysis
-Illegal Acts: auditors should focus on illegal acts that would have direct effects on the financial
statements. indirect illegal acts require disclosure only and may result in fines and penalties
-Materiality determines how much of a role the auditor should have in determining the proper
reporting and disclosure of such events.