Investopedia

Continue to Site »

Audit Risk

Filed Under » , , , , , , ,
Dictionary Says

Definition of 'Audit Risk'

The risk that an auditor will not discover errors or intentional miscalculations (i.e. fraud) while reviewing a company's or individual's financial statements. There are two general categories of audit risk – risk regarding assessment of the financial materials and risk regarding the assertions produced by evaluation of the financial materials.

Companies request an audit in order to provide confidence to investors that their financial statements and reporting are accurate. In order to insure against potential litigation arising from missed financial improprieties, such as material misstatements, auditors will typically carry malpractice insurance.
Investopedia Says

Investopedia explains 'Audit Risk'

Large public companies typically engage one of the Big Four accounting firms – PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte Touche Tohmatsu – for their internal audits. The Big Four was previously the Big Five, but Arthur Andersen fell out of the group after being indicted on counts of obstruction of justice for its role in the Enron scandal.

According to a 2008 Government Accountability Office report, the Big Four firms audit 98% of U.S. companies with annual revenues over $1 billion. Smaller companies are more likely to engage one of the "mid-range" firms, such as Grant Thornton or BDO Seidman.

Articles Of Interest

  1.

    A Look At Accounting Careers

    More than just crunching numbers, this career blends detective work with trouble shooting.

  2. 12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.

  3. How To Avoid Falling Prey To The Next Madoff Scam

    Due diligence does work, but the loose reporting standards for hedge funds make extra care and attention necessary.

  4. Examining A Career As An Auditor

    Stricter government regulations have put auditing professionals in demand.

  5. An Inside Look At Internal Auditors

    Find out why these number crunchers are part of every chief officer's dream team.

  6. Uncovering A Career In Forensic Accounting

    Does a job as a financial sleuth sound interesting to you? Dig in to learn more.

  7. Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".

  8. Financial Career Options For Professionals

    Find out if spreading your wings to try a new career will make you soar or fall flat.

  9. Financial Statement: Extraordinary Vs. Nonrecurring Items

    When it comes to analyzing a company, successful analysts spend considerable time differentiating between accounting items that are likely to recur going forward from those that most likely will ...

  10. Get A Career In Showbiz Accounting

    An accounting career doesn't have to be boring. If you love numbers, but want excitement as well, consider the field of showbiz accounting.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  2. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  3. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  5. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  6. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
Trading Center