10. The acceptable level of detection risk is inversely related to the A. Assurance provided by substantive procedures. B. Risk of misapplying auditing procedures. C. Preliminary judgment about materiality levels. D. Risk of failing to discover material misstatements.
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- The risk of incorrect rejection and the risk of underreliance relate to thea. Effectiveness of the audit.b. Efficiency of the audit.c. Preliminary estimates of performance materiality.d. Tolerable misstatement.Which of the following statements is correct regarding detection risk and the audit risk model? OA. The two components of detection risk are test of details risk and inherent risk. B. Detection risk is equal to risk of material misstatement divided by audit risk. OC. There is an inverse relationship between the risk of material misstatement and detection risk. OD. There is a direct relationship between control risk and detection risk.Which of the following does NOT accurately describe detection risk? O assessed as low when control risk and inherent risk are assessed as high O increases in indirect proportion to the amount of substantive testing performed O inverse relationship between detection risk and the auditor's assessed risk of material misstatement O risk that the auditor's testing procedures will not detect a material misstatement
- The lower the materiality level, the higher the amount of required evidence from substantive procedures to compensate for increased risk. Further audit procedures include risk assessment procedures, test of controls and substantive tests. Group of answer choices False, True True, False True, True False, FalseAs the risk of material misstatement increases, the amount of evidence the auditor will accumulate should: Oc. Stay the same b. Increase a. Decrease d. Is indeterminateWhat are the components of the risk of material misstatement (RMM)? What are the components of the audit risk model?
- On the basis of audit evidence gathered and evaluated, an auditor decides to decrease the level of detection risk from that originally planned. Assuming the same planned audit risk level, the change in the planned detection risk most likely resulted from a[n) A. Increase in the assessed control risk B.Increase in materiality levels. C. Decrease in the assessed inherent risk D.Decrease in the assessed citrol risk.Which of the following is appropriate about risk assessment? A. The assessed level of inherent and control risk can be sufficiently low, thus resulting to eliminating the need for substantive tests. B. Audit risk may be more effectively determined by assessing inherent and control risk separately. C. Detection risk is eliminated if an auditor were to examine 100 percent off the account balance or class of transactions. D. There is an iverse relationship between detection risk and the combined level of inherent and control riskWhy is the audit team more concerned with controlling the exposure to the risk of overreliancethan with the risk of underreliance?a. Only the risk of overreliance results in an incorrect audit decision.b. The risk of underreliance is not related to the audit team’s study and evaluation of internalcontrol.c. The risk of overreliance can ultimately result in the audit team’s failing to reduce auditrisk to acceptable levels.d. The risk of underreliance can be controlled by performing tests of controls during theinterim period.
- Inherent risk and control risk differ from detection risk in which of the following ways? A. Inherent risk and control risk are calculated by the client B. inherent risk and control risk exist independently of the audit. C. Inherent risk and control risk are controled by the auditor. D. Inherent risk and control risk exist as a result of the auditor's judgement about materiality.When an audior increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase the: A. extent of tests of control B. level of detection risk C. extent of tests of detail D. Level of inherent riskThe following are concepts discussedin this chapter:1. Preliminary judgment about 7. Estimated total misstatementmateriality in a segment2. Control risk 8. Planned detection risk3. Risk of fraud 9. Estimate of the combined4. Inherent risk misstatement5. Risk of material misstatements 10. Acceptable audit risk6. Known misstatement 11. Performance materialitya. Identify which items are audit planning decisions requiring professional judgment.b. Identify which items are audit conclusions resulting from application of audit procedures and requiring professional judgment.c. Under what circumstances is it acceptable to change those items in part a. after theaudit is started? Which items can be changed after the audit is 95% completed?