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Analyzing Audit And Fraud Risks

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Analyzing Audit and Fraud Risks
Audit risk, as defined in SAS No. 47, under “Audit Risk and Materiality in Conducting an Audit”, is the kind of risk that an auditor may unknowingly take by failing to make corrections as per their opinions on financial statements that are materially misstated (Riahi-Belkaoui, and Picur 34). SAS represents audit risk in the form of a model that comprises three different risks. There is the control risk, the inherent risk and detection risk. This is known as the Audit Risk Model (Riahi-Belkaoui, and Picur 34).
As a way of increasing awareness of possible fraud, SAS No. 82 - “Consideration of Fraud in a Financial Statement Audit”, was issued in 1997 (Riahi-Belkaoui, and Picur 34). This SAS does not modify the basic ARM, but it expands on the guidance for the auditor’s consideration of material fraud in conducting financial statement audits. The SAS increases an auditor’s ability to detect fraud in an organization.
Since the issuance of SAS No. 47, many other approaches of developing the ARM have been issued (Riahi-Belkaoui, and Picur 34). One such approach is the belief-function framework that is used to model the audit planning and evaluation process for accounts receivable. While using such an approach, it is easier to demonstrate the viability of the auditors. The approach also serves as an expert system to automate belief functions propagations in networks. More so, sensitivity analyses have been performed to identify the significance of

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