Firstly, the auditor considers misstatements detected in the previous substantive testing stage in relation to the financial statements as a whole. The concept of reporting materiality plays a vital role in this regard.
Secondly, auditors look for errors that can arise in the mathematical compilation of the financial statements, not only in the compilation of the financial statements of a group of entities, but also in the compilation of account balances of a single entity into appropriate financial statement items.
Thirdly, the auditor considers the presentation and content of the financial statements, with particular regard to the consistency of the financial statements with the auditor's knowledge of the business of the entity. (The presentation of financial statements in accordance with relevant accounting standards, a vital ingredient for the auditor in the opinion formulation stage, is beyond the scope of these pages).
In theory, auditors make a final evaluation of the achievable audit risk AR5 at the financial statement level, based on updated evaluations of IR5, CR5 and DR5. The acceptable audit risk AR*5 is also evaluated. If the achievable risk AR5 is less than or equal to the acceptable risk AR*5, the auditor determines the audit opinion and issues the audit report. Otherwise, if the gathering and evaluation of further evidence cannot reduce the achievable level of audit risk to an acceptable level, the auditor declines to opine.
In practice, auditors may not always apply this aspect of audit risk theory, at least consciously [fn].
The audit opinion is conveyed to interested parties as part of the auditor's report on the financial statements to the members of the entity.
