Auditing: A Risk Based-Approach to Conducting a Quality Audit
Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Chapter 7, Problem 34RSCQ

a.

To determine

Introduction: Audit risk functions with risk of material misstatement and detection risk. It may occur at assertion level or financial statement level. At assertion level risk is of three types - control, inherent and detection. At financial statement level, it related to financial statements wholly or affects many assertions in the financial statements.

To find: Relationship between the level of riskiness of the client and level of misstatement in an account balance that an auditor would consider material.

b.

To determine

Introduction: Audit risk functions with risk of material misstatement and detection risk. It may occur at assertion level or financial statement level. At assertion level risk is of three types - control, inherent and detection. At financial statement level, it related to financial statements wholly or affects many assertions in the financial statements.

To find: Effect of auditor’s characteristics on professional judgments about materiality.

c.

To determine

Introduction: Audit risk functions with risk of material misstatement and detection risk. It may occur at assertion level or financial statement level. At assertion level risk is of three types - control, inherent and detection. At financial statement level, it related to financial statements wholly or affects many assertions in the financial statements.

To find: Comparison of more skeptical auditor with less skeptical auditor for making the materially judgment in part a.

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Auditors make materiality judgments during the planning phase of the audit in order to be sure they ultimately gather sufficient evidence during the audit to provide reasonable assurance that the financial statements are free of material misstatements. The lower the materiality threshold that an auditor has for an account balance, the more the evidence that the auditor must collect. Auditors often use quantitative benchmarks such as 1% of total assets or 5% of net income to determine whether misstatements materially affect the financial statements, but ultimately it is an auditor’s individual professional judgment as to whether a given misstatement is or is not considered material. What is the relationship between the level of riskiness of the client and the level of misstatement in an account balance that an auditor would consider material? For example, assume that Client A has weaker controls over accounts receivable compared to Client B (therefore, Client A is riskier than Client…
Auditors make materiality judgments during the planning/risk assessment phase of the audit to be sure they ultimatelygather sufficient evidence during the audit to provide reasonableassurance that the financial statements are free of material misstatements.The lower the materiality threshold that an auditorhas for an account balance, the more the evidence that the auditormust collect. Auditors often use quantitative benchmarks such as 1% of total assets or 5% of net income to determine whethermisstatements materially affect the financial statements, but ultimatelyit is an auditor’s individual professional judgment as towhether a given misstatement is or is not considered material.a. What is the relationship between the level of riskiness of theclient and the level of misstatement in an account balancethat an auditor would consider material? For example,assume that Client A has weaker controls over accountsreceivable compared to Client B (therefore, Client A is riskierthan Client B).…
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 materiality
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