AUDITING RMU
11th Edition
ISBN: 9781260934830
Author: MESSIER
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 4, Problem 4.25P
To determine
Introduction: Qualitative approach to implementing audit risk model involves categorizing the risk components as very low, low, moderate and high.
To calculate: Detection risk using qualitative approach to implementing audit risk model.
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The following are concepts discussedin this chapter:1. Preliminary judgment about 7. Estimated total misstatementmateriality in a segment2. Control risk 8. Planned detection risk3. Risk of fraud 9. Estimate of the combined4. Inherent risk misstatement5. Risk of material misstatements 10. Acceptable audit risk6. Known misstatement 11. Performance materialitya. Identify which items are audit planning decisions requiring professional judgment.b. Identify which items are audit conclusions resulting from application of audit procedures and requiring professional judgment.c. Under what circumstances is it acceptable to change those items in part a. after theaudit is started? Which items can be changed after the audit is 95% completed?
Define the audit risk model and explain each term in the model.Also describe which two factors of the model when combined reflect the risk of materialmisstatements.
Which of the following statements is correct regarding detection risk and the audit risk model?
OA. The two components of detection risk are test of details risk and inherent risk.
B. Detection risk is equal to risk of material misstatement divided by audit risk.
OC. There is an inverse relationship between the risk of material misstatement and detection risk.
OD. There is a direct relationship between control risk and detection risk.
Chapter 4 Solutions
AUDITING RMU
Ch. 4 - Prob. 4.1RQCh. 4 - Prob. 4.2RQCh. 4 - Prob. 4.3RQCh. 4 - Prob. 4.4RQCh. 4 - Prob. 4.5RQCh. 4 - Prob. 4.6RQCh. 4 - Prob. 4.7RQCh. 4 - Prob. 4.8RQCh. 4 - Prob. 4.9RQCh. 4 - Prob. 4.10RQ
Ch. 4 - Prob. 4.11RQCh. 4 - Prob. 4.12RQCh. 4 - Prob. 4.13MCQCh. 4 - Prob. 4.14MCQCh. 4 - Prob. 4.15MCQCh. 4 - Prob. 4.16MCQCh. 4 - Prob. 4.17MCQCh. 4 - Prob. 4.18MCQCh. 4 - Prob. 4.19MCQCh. 4 - Prob. 4.20MCQCh. 4 - Prob. 4.21MCQCh. 4 - Prob. 4.22MCQCh. 4 - Prob. 4.23PCh. 4 - Prob. 4.24PCh. 4 - Prob. 4.25PCh. 4 - Prob. 4.26PCh. 4 - Prob. 4.27PCh. 4 - Prob. 4.28PCh. 4 - Prob. 4.29PCh. 4 - Prob. 4.30PCh. 4 - Prob. 4.31PCh. 4 - Prob. 4.32P
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- 1. List three reasons management may ask for an operational audit to be performed and explain how the audit program would be impacted by each of them. 2. Explain the importance of identifying risk factors and using them during the planning phase. 3. Give two examples where document inspection is a useful technique to examine operational risks and related controls. 4. Explain professional skepticism and why it is important for all auditors. 5. Explain the acronym CCCER. 6. What are the defining characteristics of persuasive audit evidence? 7. What are the key characteristics of well prepared working papers? 8. What do internal auditors mean when they refer to the nature, extent, and timing of audit procedures? 9. What information should be included in a well designed final assurance engagement communication? 10. What actions regarding assurance engagement observations must the internal audit function take after the final engagement communication is disseminated?arrow_forwardWhich of the following is appropriate about risk assessment? A. The assessed level of inherent and control risk can be sufficiently low, thus resulting to eliminating the need for substantive tests. B. Audit risk may be more effectively determined by assessing inherent and control risk separately. C. Detection risk is eliminated if an auditor were to examine 100 percent off the account balance or class of transactions. D. There is an iverse relationship between detection risk and the combined level of inherent and control riskarrow_forwardits components. The firm of Pack & Peck evaluates the risk of material isstate- -1,4-2, 4-3 4-27 When planning a financial statement audit, a CPA must understand au sk its components. The firm of Pack & Peck evaluates the risk of materiai ment (RMM) by disaggregating RMM into its two components: inherentisk and control risk. Required: For each illustration, select the component of audit risk that is most directly illus- trated. The components of audit risk may be used once, more than once, or not at all Components of Audit Risk: a. Control risk b. Detection risk c. Inherent risk Component of Audit Risk Illustration 1. A client fails to discover employee fraud on a timely basis because bank accounts are not reconciled monthly. 2. Cash is more susceptible to theft than an inventory of coal. 3. Confirmation of receivables by an auditor fails to detect a material misstatement. 4. Disbursements have occurred without proper approval. 5. There is inadequate segregation of duties. 6. A…arrow_forward
- The following table shows a number of factors recognised by the auditor as having an effect on the risk of fraud. Note: Number 1 risk factor is completed for you as an example in the table below. Using the table below, write your answers for Number 2 to 6 in the table. Required: For each of the foregoing risk factors listed in the left-hand column of the Table above, write in the right-hand column (i) the risk component that is most directly related to the following three option: Incentives/Pressures (I/P) Opportunity (O)Attitude/Rationalisation (A/R)arrow_forwardWhen the auditor has assessed control risk of a particular area at a reduced level, he or she will then Select one: a. eliminate the need to gather evidence in that area. b. test the effectiveness of the controls in that area. c. proceed to expand the sample sizes in that area. d. negotiate with management to determine which controls will be tested in that area.arrow_forwardWhich of the following is a correct? Select one: a. Planned detection risk and inherent risk have an inverse relationship. b. All of the above are correct relationships. c. Acceptable audit risk and planned detection risk have an inverse relationship. d. Control risk and planned detection risk have a direct relationship.arrow_forward
- Auditors identify and assess the risk of material misstatement at these two levels Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a Financial Statement level and Information Process Goals level b Financial statement level and Operations Process Goals level c Information Process Goals level and Operations process goals level d Financial Statement Level and Relevant Assertion Levelarrow_forwardIn assessing control risk, an auditor selects from a variety of techniques, including A. Inquiry and recalculation B. Reperformance and observation C. Comparison and confirmation D. Inspection and verificationarrow_forwardAuditors need to identify audit risk in planning an audit engagement. In doing so, the audit risk model may be adopted. Require:Write the audit risk model in the two common ways it is often used by auditor. Each risk should be written in the model or named clearly for any abbreviations used.arrow_forward
- Based on evidence gathered and evaluated, an auditor decides to increase the assessedlevel of control risk from that originally planned. To achieve an overall audit risklevel that is substantially the same as the planned audit risk level, the auditor could(1) decrease detection risk. (3) decrease substantive testing.(2) increase materiality levels. (4) increase inherent risk.arrow_forwardIn performing a risk-based audit, when developing audit recommendations, the IT auditor should: a) Use Computer Assisted Audit Techniques (CAATs) to test transactions. b) Analyze the inherent risk, residual risk, and the cost of additional controls in relation to the potential for loss. c) Determine if the risk is material based solely on auditor judgement. d) Perform substantive procedures to eliminate control riskarrow_forwardAnalytical procedures are a critical part of audit work. Describe at least three different analytical procedures and explain how to perform each. Specify what the results will reveal about the client.arrow_forward
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