Chapter 7, Problem 52RSCQ

a)

To determine

Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:that the audit risk should be considered at zero level for almost all the audit assignments.

To determine

Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.

To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.

To determine

Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the control systems of an organization.

To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.

To determine

Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.

To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.

To determine

Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.

To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.

To determine

Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.

To state:that judgment of the auditor is a key factor while deciding about the audit risk model.