Below are ten independent risk factors:1. The client lacks sufficient working capital to continue operations.2. The client fails to detect employee theft of inventory from the warehouse becausethere are no restrictions on warehouse access and the client does not reconcileinventory on hand to recorded amounts on a timely basis.3. The company is publicly traded.4. The auditor has identified numerous material misstatements during prior yearaudit engagements.5. The assigned staff on the audit engagement lack the necessary skills to identifyactual errors in an account balance when examining audit evidence accumulated.6. The client is one of the industry’s largest based on its size and market share.7. The client engages in several material transactions with entities owned by familymembers of several of the client’s senior executives.8. The allowance for doubtful accounts is based on significant assumptions made bymanagement.9. The audit program omits several necessary audit procedures.10. The client fails to reconcile bank accounts to recorded cash balances.Identify which of the following audit risk model components relates most directly toeach of the ten risk factors:• Acceptable audit risk • Control risk• Inherent risk • Planned detection risk
Below are ten independent risk factors:
1. The client lacks sufficient
2. The client fails to detect employee theft of inventory from the warehouse because
there are no restrictions on warehouse access and the client does not reconcile
inventory on hand to recorded amounts on a timely basis.
3. The company is publicly traded.
4. The auditor has identified numerous material misstatements during prior year
audit engagements.
5. The assigned staff on the audit engagement lack the necessary skills to identify
actual errors in an account balance when examining audit evidence accumulated.
6. The client is one of the industry’s largest based on its size and market share.
7. The client engages in several material transactions with entities owned by family
members of several of the client’s senior executives.
8. The allowance for doubtful accounts is based on significant assumptions made by
management.
9. The audit program omits several necessary audit procedures.
10. The client fails to reconcile bank accounts to recorded cash balances.
Identify which of the following audit risk model components relates most directly to
each of the ten risk factors:
• Acceptable audit risk • Control risk
• Inherent risk • Planned detection risk
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