Principles of Auditing & Other Assurance Services (Irwin Accounting)
20th Edition
ISBN: 9780077729141
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Question
Chapter 5, Problem 48P
a.
To determine
Explain audit risk.
b.
To determine
Explain the components of inherent risk, control risk, and detection risk.
c.
To determine
Explain the interrelationship among the given components.
d.
To determine
Explain the component which is completely a function of the sufficiency of the evidence gathered by the auditors’ procedures.
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The auditor should consider audit risk when planning and performing an audit of financial statements. Audit risk should also be considered together in determining the nature, timing, and extent of auditing procedures and in evaluating the results of those procedures.
Required:
a. Define audit risk
b. Describe the components of audit risk (e.g., inherent risk, control risk, and detection risk).
c. Explain how these components are interrelated
The auditor should consider audit risk when planning and performing an audit of financial statements. Audit risk should also be
considered together in determining the nature, timing, and extent of auditing procedures and in evaluating the results of those
procedures.
Required:
a. Define audit risk.
b. Describe the components of audit risk (e.g., inherent risk, control risk, and detection risk).
c. Explain how these components are interrelated.
(AICPA, adapted)
Define risk of material misstatement. At what level of the financial statements do auditors measure RMM? Describe how auditors assess the RMM. What role does RMM play in substantive testing?
Chapter 5 Solutions
Principles of Auditing & Other Assurance Services (Irwin Accounting)
Ch. 5 - Prob. 1RQCh. 5 - Prob. 2RQCh. 5 - Prob. 3RQCh. 5 - Distinguish among routine, nonroutine, and...Ch. 5 - Prob. 5RQCh. 5 - Prob. 6RQCh. 5 - Prob. 7RQCh. 5 - As part of the verification of accounts receivable...Ch. 5 - Prob. 9RQCh. 5 - When in the course of an audit might the auditors...
Ch. 5 - Prob. 11RQCh. 5 - Prob. 12RQCh. 5 - Prob. 13RQCh. 5 - Prob. 14RQCh. 5 - Prob. 15RQCh. 5 - Prob. 16RQCh. 5 - Prob. 17RQCh. 5 - What disclosures should be made in the financial...Ch. 5 - Prob. 19RQCh. 5 - Prob. 20RQCh. 5 - Prob. 21RQCh. 5 - Prob. 22RQCh. 5 - Prob. 23RQCh. 5 - Prob. 24RQCh. 5 - Prob. 25RQCh. 5 - Prob. 26RQCh. 5 - Prob. 27RQCh. 5 - Prob. 28RQCh. 5 - Prob. 29RQCh. 5 - I have finished my testing of footings of the cash...Ch. 5 - Prob. 31RQCh. 5 - Prob. 32RQCh. 5 - Financial statements contain a number of...Ch. 5 - Prob. 34QRACh. 5 - In an audit of financial statements, the auditors...Ch. 5 - Prob. 36QRACh. 5 - Prob. 37QRACh. 5 - Prob. 38QRACh. 5 - Prob. 39QRACh. 5 - Prob. 40QRACh. 5 - Prob. 41QRACh. 5 - Prob. 42QRACh. 5 - Prob. 43AOQCh. 5 - Prob. 43BOQCh. 5 - Prob. 43COQCh. 5 - Prob. 43DOQCh. 5 - Prob. 43EOQCh. 5 - Prob. 43FOQCh. 5 - Prob. 43GOQCh. 5 - Prob. 43HOQCh. 5 - Prob. 43IOQCh. 5 - Prob. 43JOQCh. 5 - Prob. 43KOQCh. 5 - A difference of opinion concerning accounting and...Ch. 5 - Prob. 44OQCh. 5 - Prob. 45OQCh. 5 - Prob. 46AOQCh. 5 - Prob. 46BOQCh. 5 - Prob. 46COQCh. 5 - The cost of analytical procedures in terms of time...Ch. 5 - Prob. 46EOQCh. 5 - Prob. 47OQCh. 5 - Prob. 48PCh. 5 - Prob. 49PCh. 5 - Prob. 50PCh. 5 - Prob. 51PCh. 5 - Prob. 52PCh. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 56RDC
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Similar questions
- Consider the concepts of sufficient and appropriate audit evidence. Assess how audit risk relates to audit evidence. How do auditors audit accounting estimates and other subjective information? What are analytical procedures, and why are they a useful audit tool? Explain the importance of audit documentation.arrow_forwardclarify the relationship between audit risk and materiality determining the right degree of audit risk necessitates an auditor making a determination on materiality.arrow_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
- Which of the following statements is correct concerning analytical procedures used in planning an audit engagement?a. They often replace the tests of controls that are performed to assess control risk.b. They typically use financial and nonfinancial data aggregated at a high level.c. They usually involve the comparison of assertions developed by management to ratios calculated by an auditor.d. They are often used to develop an auditor’s preliminary judgment about materiality.arrow_forward1. In auditing receivables, what are the audit objectives and how would you be performed to arrive at the most reliable information to express an opinion?arrow_forwardOutline the sources of audit evidence the auditor can use as part of risk assessment procedures.arrow_forward
- Which of the following is correct about the appropriateness of audit evidence? O a. It is the measure of the over-all audit strategy O b. It is the measure of the quantity of audit evidence O c. It is the measure of the quality of audit evidence O d. It is the amount of the audit evidencearrow_forwardDefine the term "materiality" in the context of audit reporting. What factors will influence the auditor's assessment of materiality?arrow_forwardGenerally accepted auditing standards (the performance principle) require auditors to gather sufficient appropriate evidence on which to base an opinion.Required:a. Briefly define the characteristics “sufficient” and “appropriate” as they relate to audit evidence.b. What are relevance and reliability (as they relate to audit evidence)? How do these concepts relate to the auditors’ requirement to gather sufficient appropriate evidence?c. How does the source of evidence affect its reliability?d. How does the effectiveness of the entity’s internal control affect the sufficiency and appropriateness of evidence gathered by auditors?arrow_forward
- Which of the following are reasons that auditors conduct analytical procedures at the risk assessment phase of the audit? Select all that apply. O assist with the identification of risk assess if the financial statements reflect the auditor's knowledge of their client O identify accounts at risk of material misstatement O highlight unusual fluctuations in accounts O helps with the calculation of materialityarrow_forwardExplain the components and objectives of audit risk? How is audit risk involved in assessing the likelihood that fraud may occur and where it's most likely to occur within the financial statements? How does risk assessment during the planning stage of an audit impact the tone for the entire audit engagement?arrow_forwardWhat does an operational audit attempt to measure? Does an operational audit involve more or fewer subjective judgments than a compliance audit or an audit of financial statements? Explain. To whom is the report usually directed after completion of an operational audit?arrow_forward
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