Essay subject is Auditing and is about Applied Graphene Materials Plc

Subject is Auditing and is about Applied Graphene Materials Plc - Essay Example Failure by the auditors to give this view compromises the quality of the audit that is carried out. Audit risk includes any factor at the discretion of the auditor that may cause a material misstatement or even omissions in the financial statements of a company (Dotel, 2015). These risks may arise in different forms in the audit report and the financial statements. First, by an auditor failing to emphasize a matter that is of significance to the users of the financial statements in the audit report, audit risk arises. Secondly, an auditor may provide an opinion on the financial statements where no such opinion may be reasonably given as a result of the significant limitation of scope in the audit performance (Zuca, 2013). Audit risk is a component of three major risks namely, inherent risk, detection risk, and control risk. All these three risks are likely to be encountered while performing an audit. The auditor is therefore expected to assess the level of risk pertaining to each of the three components of audit risk. Inherent risk refers to the risk of material misstatements in a company’s financial statements due to the error of omission. The error of omission of key components of an audit in the audit report arises because of other factors apart from the failures of business internal controls. This component of audit risk is common in companies that have more complex transactions (Schwartz, 2013). Control risk refers the risk of a material misstatement in the company’s financial statements due the failure of operation of relevant controls in a business. In order to reduce the instances of fraud and error within an organization, there is the need for the companies to have proper inter nal controls. Control risk becomes high when a business does not have adequate internal control systems thus creating opportunities for fraud and errors in the financial statements. Furthermore, in order to prevent this