Relationship between control risk and detection risk is ordinarilyĭ. Increasing materiality levels beyond those used in planning the audit.) 14. Answer (d) is incorrect because there appears to be no justification for Answer (c) is incorrect because an increase in inherent risk will also increase audit risk. Answer (a) is incorrect because a decrease in substantive testing will increase, not decrease, detection risk and thereby increase audit risk. Answer (b) is correct because a decrease in detection risk will allow the auditor achieve an overall audit risk level substantially the same as planned. (b) The requirement is to determine the best way for an auditor to achieve an overall audit risk level when the audit evidence relating to control risk indicates the need to increase its assessed level. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would On the basis of the audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. However, the assessed levels of inherent and control risk (not addressed in this question) may be affected by auditor decisions relating to the cost of gathering evidence to substantiate assessed levels below the maximum.) 13. Answer (d) is incorrect because inherent risk and control risk are functions of the client and its environment, they cannot be changed at theĪuditor's discretion. Answer (b) is incorrect because inherent risk, control risk and detection risk may each be assessed in either quantitative or nonquantitative terms. Answer (a) is incorrect because inherent risk and control risk are functions of the client and itsĮnvironment and do not arise from misapplication of auditing procedures. Answer (c) is correct because inherent risk and control risk exist independently of the audit of the financial statements as functions of the client and its environment, whereas detection risk relates to the auditor's procedures and can be changed at his or her discretion. (c) The requirement is to determine a manner in which inherent risk and control risk differ from detection risk. Can be changed at the auditor's discretion. Exist independently of the financial statement audit.ĭ. May be assessed in either quantitative orĬ. Arise from the misapplication of auditing procedures.ī. Inherent risk and control risk differ from detection risk in that theyĪ. Answer (c) is correct because all of these risks may be assessed in either quantitative terms such as percentages, or nonquantitative terms such as a range from a (c) The requirement is to determine whether inherent risk, control risk, and detection risk may be assessed in nonquantitative terms. Which of the following audit risk components may be assessed in nonquantitative terms?Ĭontrol risk-Detection risk-Inherent risk Answer (d) is incorrect because inherent risk is the susceptibility of an assertion to a material misstatement, assuming that there are no related controls.)ġ1. Answer (c) is incorrect because nonsampling risk includes only those aspects of audit risk that are not due to sampling. When related to substantive tests sampling risk is only a part of the risk that the auditor's substantive tests will not detect a material misstatement. Answer (a) is incorrect because sampling risk arises from the possibility that, when a test of controls or a substantive test is restricted to a sample, the auditor's conclusions may be different from the conclusions he or she would reach if the tests were applied in the same way to all items in the account balance or class of transactions. Detection risk may be viewed in terms of two components (1) the risk that analytical procedures and other relevant substantive tests would fail to detect misstatements equal to tolerable misstatement, and (2) the allowable risk of incorrect acceptance for the substantive tests of details. Answer (b) is correct because detection risk is the risk that the auditor will not detect a material misstatement that exists in an assertion. (b) The requirement is to identify the risk that an auditor will conclude, based on substantive tests, that a material error does not exist in an account balance when, in fact, such error does exist.
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