Potential risk is the risk which is an expected in an action by the Auditor. This risk is the damage factor to the genuineness of the operations of a client. To Explain: The potential risk areas and explanation for these risk areas and the description of potential risk areas affecting the audit engagement .

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Audit risks for particular accounts and disclosures can be conceptualized in the model: Audit risk (AR) = Inherent risk (IR) × Control risk (CR) × Detection risk (DR). Use this model as a framework for considering the following situations and deciding whether the auditor’s conclusion is appropriate.a. Paul, CPA, has participated in the audit of Tordik Cheese Company for five years, first as an assistant accountant and the last two years as the senior accountant. Paul has never seen an accounting adjustment recommended and believes the inherent risk must be zero.b. Hill, CPA, has just (November 30) completed an exhaustive study and evaluation of the internal controls of Edward Foods Inc. (fiscal year ending December 31). Hill believes the control risk must be zero because no material errors could possibly slip through the many error-checking procedures and review layers that Edward used.c. Fields, CPA, is lazy and does not like audit jobs in Philadelphia. On the audit of Philly…

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Chapter 7, Problem 19RQSC

a)

To determine

Introduction: Potential risk is the risk which is an expected in an action by the Auditor. This risk is the damage factor to the genuineness of the operations of a client.

To Explain:The potential risk areas and explanation for these risk areas and the description of potential risk areas affecting the audit engagement.

b)

To determine

Introduction: Potential Skepticism is the alertness factor of the working style of an Auditor who is prepared to handle any probable misstatement during the course of audit.

To Explain:The data which compels the auditor to use professionalism level while exercising in audit.

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Audit risks for particular accounts and disclosures can be conceptualized in the model: Audit risk (AR) = Inherent risk (IR) × Control risk (CR) × Detection risk (DR). Use this model as a framework for considering the following situations and deciding whether the auditor’s conclusion is appropriate.a. Paul, CPA, has participated in the audit of Tordik Cheese Company for five years, first as an assistant accountant and the last two years as the senior accountant. Paul has never seen an accounting adjustment recommended and believes the inherent risk must be zero.b. Hill, CPA, has just (November 30) completed an exhaustive study and evaluation of the internal controls of Edward Foods Inc. (fiscal year ending December 31). Hill believes the control risk must be zero because no material errors could possibly slip through the many error-checking procedures and review layers that Edward used.c. Fields, CPA, is lazy and does not like audit jobs in Philadelphia. On the audit of Philly…

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