a)
Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.
To state:that the audit risk should be considered at zero level for almost all the audit assignments.
Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.
To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.
Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the
To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.
Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.
To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.
Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.
To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.
Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.
To state:that judgment of the auditor is a key factor while deciding about the audit risk model.
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Chapter 7 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
- Read the case. Then answer the questions based on it. BACKGROUND: Audit standards indicate that there is a presumption that auditors will confirm accounts receivable unless the balance is immaterial, confirmations are deemed ineffective, or the auditors' assessment of risk is low and other procedures will achieve the same objective. However, these instances are considered few and far between and current trends in auditing indicate that there is an expectation that accounts receivable will be confirmed. Auditors may stratify the population, use haphazard or judgmental sampling, and send positive or negative requests. Jenner & Jenner CPAs are the auditors for the Leno Company. In reviewing the accounts receivable aging, the auditors learn that there is a high number of accounts with balances, there are some very large and very small balances, and many customers' balances consist of multiple invoices. 2. How should the auditors mitigate the risk associated with both very large and…arrow_forwardDescribe a situation that would require an auditor to give an unmodified opinion without a standard report. Describe a situation that would cause an auditor to modify their opinion. Analyze possible actions an auditor might take if a client’s financial statements depart from GAAP. Do you think the demand for assurance services will increase or decrease in the future? Explain.arrow_forwardWhen planning to perform an audit, an accountant must have a clear understanding of audit risk and its components. The existing audit risk components consist of: 1. Control Risk 2. Detection Risk 3. Inherent Risk For each of the following situations, determine the component of audit risk that exists and explain why. 1. The client failed to find fraud committed by his employees as early as possible because the client did not reconcile the bank balance every month. 2. The auditor's confirmation of accounts receivable failed to detect material misstatements in the sales and accounts receivable accounts. 3. Procedure for disbursement of money at the client which is carried out without the approval of the authorized officialarrow_forward
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub