Name: Kazi Rahman
Mona and Michael’s friend is right, public accountants provide three different types of assurance services. These are audit, review, and compilation services; here is a summary of these engagements:
Audit engagements provide a high level of assurance that financial statements present fairly in all material respects the financial position and results of operations of the company.
Review engagements provide a moderate level of assurance that financial statements are in accordance with appropriate criteria, in all material respects. (paragraph 8100.05 of the CICA Handbook)
A compilation engagement is referred to as a related service and is not an assurance engagement. This is…show more content…
For owner managed enterprise with a tax-minimization object where net income is consistently nominal prescribed rate is 5 to 10% of net income before bonus. MPI materiality rate is kept at 5% of Net income before taxes and bonus considering the following factors in addition to guidance provided in auditing standards:
* MPI is a new client and last year the company was not audited. * Bank has outlined some preliminary conditions for financing MPI. * MPI has been experiencing increased competitive price pressure from super store. * Current year sales has decreased by 15% and inventory level increased by 20%
Calculation of Planned Detection Risk:
DR= AR/(IRXCR) (Here DR is Detection Risk, AR is Audit Risk, IR is Inherent Risk and CR is Control Risk)
DR = 0.03 / (0.55 x 0.1) = 0.5454 that means Detection Risk is 55.55%
DR = 0.03 / (0.45 x 0.1) = 0.6667 that means 66.67%
With the 10% decrease in IR, Detection Risk will increase from 55% to 67%. So this has an inverse affect.
DR = 0.03 / (0.55 x 0.25) = 0.2182 that means 21.82%
With the 15% increase in CR, Detection Risk will decrease from 55% to 22%. So this has also an inverse affect.
Detection risk directly impacts the quality and amount of evidence collected. As RMM increases with the decrease in DR. There will be following