Abstract
The aim of this paper is a) to investigate the relationship between the business risk and the risk of material misstatement at an overall financial level and b) to determine the dependencies between the risk of material misstatement and selected risk factors affecting pervasively the financial statements and many assertions. The study was based on data collected from a statistical survey among experienced statutory auditors employed by the five largest international audit firms in Greece. The research suggests a statistically significant relationship between the business risk and the risk of material misstatement at the overall financial statements level. Furthermore, although the majority of the survey participants believes that the recent financial crisis in Greece affected their assessments on going concern risk and the risk linked to accounting estimations substantially, the dependencies between those two risks and the risk of material misstatement at an overall financial statements level are not validated by the survey data.
Highlights
Audit risk is a function of the risk of material misstatement and the detection risk
Based on the survey data, the majority (69%) of the participants have declared that the recent financial crisis in Greece affected substantially the risk of material misstatement, as it is assessed in the course of the financial statements audits for commercial and manufacturing Greek companies, after the occurrence of the crisis
The survey does not provide sufficient documentation in order to draw the same conclusion regarding the relevance between the risk of material misstatement at an overall financial statement level and the risks related to going concern assumption and accounting estimates
Summary
Audit risk is a function of the risk of material misstatement and the detection risk. The paper reaches a quantitative assessment of the level and discusses the nature of the relationship between the risk of material misstatement and selected risk factors, which affect pervasively the financial statements as a whole and they have a potential effect on many assertions. The study is designed so as to quantitatively examine the relationship between the business risk and the risk of material misstatement at an overall financial level It tries to determine the existence, level and nature of the relevance of the risk of material misstatement with selected risk factors affecting pervasively the financial statements and many assertions.
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