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2. Audit Risk – An Overview
• Concept of Audit Risk
– Inverse of reasonable assurance
– If 99% certainty is desired, the audit risk is 1%
• Professional Judgment and Audit Risk
– Usually audit firm policy
– Comparable from one audit to another

4. • Three conditions are generally present when fraud occurs.
• Incentives/ pressures. Management or other employees have
an incentive or are under pressure, which provides a reason
to commit fraud.
• Opportunity. Existing circumtances provide an opportunity
for fraud to be perpetrated, such as the ability of
management to override controls, the absence of controls,
or ineffective controls.
• Rasionalization. Those involved in committing fraud are
able to rationalize the fraudulent behavior. In other words,
some individuals posses an attitude, character or set of
ethichal values that allow them knowingly and intentionally
commit a dishonest act.

5. • Risk factors associated with fraudulent
financial reporting
• Incentive/ pressure
• Economic, industry and operating conditions
• Low barriers to entry, high degree of
competition combined with declining margins,
• Vulnerability to technological change

6. Auditing for Fraud
Risk Assessment Procedures
Auditor should perform the following procedures to
identify the risk of material misstatement due to fraud:
• Make inquiries of management and others within the
entity to obtain their views about the risk of fraud and
how it is addressed.
• Consider any unusual or unexpected relationships that
have been identified in performing analytical
procedures in audit planning.
• Consider other information obtained while planning the
audit.

7. Brainstorming Session
The brainstorming session should:
• Allow junior members of the audit team to benefit from more senior
members’ knowledge of the audit client and how fraud might be
perpetrated.
• Allow more seassoned personnel a fresh set of eyes that might identify risks
that otherwise might be overlooked.
• Allow audit management to set the appropriate tone for the audit and to
emphasize the importance of approaching the audit with a “questioning
mind”.
• Emphasize the possibility that fraud might exist in any audit.
Specific Risks
• Auditors should approach the audit with a presumption that improper
revenue recognition is a fraud risk.
• Auditors should perform certain procedures to address the risk management
override of controls. E.g. Auditors should examine journal entries and other
adjustments for evidence of possible material misstatement due to fraud.

8. Model Risiko Audit
AR = IR x CR x DR
AR = IR x CR x AP x TD
Dwi&Hanna
Dimana:
AR
IR
CR
AP
DR
TD
= risiko audit
= risiko bawaan
= risiko pengendalian
= risiko prosedur analitis
= risiko deteksi
= risiko pengujian terinci

9. Risk components matrix

10. Assessing The Components of Audit
Risk
• Inherent Risk, is the suscepbility of an assertion to material
misstatement, assuming that there are no controls.
• Control Risk, is the risk that a material misstatement that
could occur in an assertion will not be prevented or
detected on a timely basis by the entity’s internal controls.
• Detection Risk, is the risk that the auditor will not detected
a material misstatement that exists in an assertion.

11. Interrelationships among materiality,
detection risk, and substantive audit
evidence

12. Components of preliminary audit
strategies
• The assessed level of inherent risk.
• The planned assessed level of control risk considering:
• The estent of understanding the internal controls to be
obtained.
• Tests of controls to be performed in assessing control risk.
• The planned assessed level of analytical procedures risk
considering:
• The extent of the understanding of the business and industry
to be obtained.
• Analytical procedures to be performed that provide evidence
about the fair presentation of an assertion.
• The planned level of tests of details that, when combined with
other procedures, reduces audit risk to an appropriately low level.