If tests of controls induce the auditor to change the assessed level of control risk for Property, Plant, and Equipment from moderate to high, and audit risk and inherent risk remain constant, the acceptable level of detection risk
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- How does inherent risk relate to internal controls? Why is it important to assess inherent risks of material misstatement prior to evaluating the quality of an organization’s internal controls?After obtaining an understanding of an entitiy's internal control, an auditor may assess control risk at the maximum level for some assertions because he A. performs tests of controls to restrict detection risk to an acceptable level. B. identifies internal control policies and procedures that are likely to prevent material misstatements. C. believes the internal control policies and procedures are unlikely to be effective. D. determines that the pertinent internal control components are not well documented.In order to assess Control Risk/the risk of material misstatement, the auditor would complete all of the following steps except: A) Consider the likelihood that identified risks could result in material misstatement B) Identify risks C) Determine the Risk of Incorrect Acceptance
- Inherent risk is: a. the risk of a misstatement occurring irrespective of any internal controls put in place by management. b. the risk that the auditor's testing procedures will not detect a material misstatement. c. assessed as high when there are no internal controls tested or relied upon by the auditor. d. assessed as low when there are good internal controls in place. Choose the correct answer and explain why it is the correct answerWhen 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 riskWhen assessing and identifying Control Risk or Risk of Material Misstatement, the auditor may answer these following question(s) a. What is the risk of material misstatement (Identify Potential Risk) b. What could go wrong given this potential risk of material misstatement c. Could the risk lead to material misstatement (Yes/NO) d. All the above questions
- Auditing standards indicate that if the preliminary control risk assessment is low, the auditor then gains assurance that the controls are operating effectively. What is meant by testing the operating effectiveness of controls? How does an auditor decide which controls to test?The tolerable rate of deviation set by the auditor for tests of controls depends primarily on which of the following? a. The planned risk of assessing control risk too low. b. The dollar amount of substantive misstatements. c. The anticipated cause of the errors. d. The tolerable rate used in audits of other clients in the same industry.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.
- When an auditor decreases the planned assessed level of control risk because certain control procedures were determined to be more effective than anticipated, the auditor would most likely increase the: a. Extent of tests of details. b. Level of inherent risk. c. Extent of tests of controls. d. Level of detection risk.Once the auditor detects a control deficiency, which of the following steps must he or shetake first?a. Perform tests of other controls related to the same assertion as the control deemedineffective.b. Evaluate the severity of the deficiency on the auditor’s control risk assessment for thatassertion.c. Modify the planned substantive procedures as a result of the deficiency.d. Test the deficient control, assuming a maximum level of risk.