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a) Audit risk: Generally refers to the possibility of the auditor reaching a wrong conclusion e.g. conclusion that creditors are fairly stated and they are not. This means the chance of damage to the audit firm as a result of giving an audit opinion that is wrong in some particular.
Damage to the audit firm may be in the form of monetary damages paid to a client or third party as compensation for loss caused by the conduct of the audit firm or simply loss of reputation with the client or business community.
b) These steps are adequately covered under the chapter on independence and qualities of an auditor whereby we considered steps taken by the profession to secure the qualities of competence, judgement objectivity and integrity in an auditor.
c) Specific actions by an audit firm to minimise liability arising from audit risk.
• Proper recruitment and training of all personnel.
• Allocation of staff with appropriate ability to particular audits.
• Planning the work of the firm in such a way that each audit can be approached in a relaxed but disciplined way and timing problems may be accommodated.
• Two way communication with staff on matters of general concern and in connection with special audit.
• Use of audit manuals which conform to the audit standards and guidelines.
• Use of audit documentation which is comprehensive and yet allows for special situations.
• Use of budgeting and other techniques to ensure that audits are remunerative and yet risk minimising.
• Use of precise and frequently updated letters of engagement.
• Use of review techniques for all audits.
• Existence of a technical section so that all new developments accounting law and audit procedures are rapidly incorporated into the firm’s actions.
Musyoxx answered the question on March 14, 2018 at 16:06
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