FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
Using your knowledge of the relationships among acceptable audit risk, inherent risk, control risk, planned detection risk, performance materiality, and planned evidence, state the effect on planned evidence (increase or decrease) of changing each of the following factors, while the other factors remain unchanged.
- an increase in acceptable audit risk ________
- an increase in inherent risk ________
- a decrease in control risk ________
- an increase in planned detection risk ________
- an increase in performance materiality ________
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- If control risk is assessed at the maximum, the auditor is required to obtain knowledge about the: Design of Control Policies and Procedures Yes O No OYes O No Whether Control Policies and Procedures Have been Implemented No Yes Yes Noarrow_forwardWhat are the risks if the auditor concludes controls are operating effectively based on the sample and Control Risk is set too low?arrow_forwardThe audit team will choose to reduce the reliance on controls if the _____ is greater than the _____a. Tolerable rate of deviation; upper limit rate of deviation.b. Upper limit rate of deviation; tolerable rate of deviation.c. Expected population deviation rate; tolerable rate of deviation.d. Tolerable rate of deviation; expected population deviation rate.arrow_forward
- Risk of incorrect rejection is defined as _______. the risk that the auditor concludes that a material misstatement does not exist when it does exist the risk that the auditor concludes that a material misstatement exists when it does not exist the risk that an auditor incorrectly rejects a client the risk that management may reject the audit opinion issued by the auditor An advantage of statistical sampling _______. is that it allows an auditor to measure control risk is that it allows an auditor to measure sampling risk is that it allows an auditor to measure inherent risk is that it is cheaper to perform, resulting in lower audit fees for the clientarrow_forwardRecall the definition of inherent risk. Why is it important for internal auditors to focus on inherent risk during the planning phase of an assurance engagement?arrow_forwardThe more assurance the auditor wants, _______. A. the less representative a sample should be of the population, and the more testing the auditor needs to do B. the more representative a sample should be of the population, but the less testing the auditor needs to do to gain efficiency C. the more representative a sample should be of the population, and the more testing the auditor needs to do D. the less representative a sample should be of the population, and the less testing the auditor needs to doarrow_forward
- When is the timing of substantive procedures most flexible? detection risk is assessed as low O there is a lack of an effective control environment O controls have been tested and are determined to be ineffective O controls have been tested and are determined to be effectivearrow_forward6. Joliet Company is considering two alternative investments. The company requires an 18% return from its investments. Category Initial Investment Net cash flows anticipated: Year 1 Year 2 Year 3 Year 4 Year 5 Project X 108,000 36,000 39,000 32,000 34,000 25,000 Compute the IRR for both Projects and recommend one of them. Project Y $98,000 25,000 45,000 42,000 28,000 17,000arrow_forwardExplain the circumstances when the auditor should revise the components of the audit risk model and the effect of the revisions on planned detection risk and planned evidence.arrow_forward
- When an auditor decreases the planned assessed level of control risk because certain control procedures were determined to be more effective than anticipated, the auditor would most likely increase the: a. Extent of tests of details. b. Level of inherent risk. c. Extent of tests of controls. d. Level of detection risk.arrow_forwardWhen an audior increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase the: A. extent of tests of control B. level of detection risk C. extent of tests of detail D. Level of inherent riskarrow_forwardIn determining the tolerable deviation rate for a test of controls, the auditors consider: Their planned assessed level of control risk. The sample size. The nature of the test. The expected deviation rate in the population.arrow_forward
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