Answered: Explain why the audit of prepaid…

Explain why the audit of prepaid insurance should ordinarily take arelatively small amount of audit time if the client’s assessed control risk for acquisitionsis low.

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:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter6: A Framework For Audit Evidence

Section: Chapter Questions

Problem 9TFQ

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Concept explainers

Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.

Question

Explain why the audit of prepaid insurance should ordinarily take a
relatively small amount of audit time if the client’s assessed control risk for acquisitions
is low.

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Distinguish between the evaluation of the adequacy of insurancecoverage and the verification of prepaid insurance. Explain which is more important ina typical audit
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