True or false 9. The control risk is the risk of auditors fail to detect material misstatement leads to detection risk. Explain why?
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- Which of the following terms best describes the risk that audit procedures will fail to detect material misstatements? a. Control risk. b. Inherent risk. c. Detection risk. d. Audit risk.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 answerThe risk of a material misstatement in the financial statements arising due to error or omission as a result of factors other than the failure of controls is called: a. Control Risk b. Inherent Risk c. Audit Risk d. Detection 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 riskThe higher the risk of material misstatements the lower should audit risk be taken. True or falseThe risk that the auditors’ own testing procedures will lead to the decision that materialmisstatements do not exist in the financial statements when in fact such misstatements doexist isa. Audit risk.b. Inherent risk.c. Control risk.d. Detection risk.
- The risk of overreliance is 5%, EDR is 2, TRD is 5, and the number of deviations found is 2. The auditor should: Group of answer choices Conclude that controls are not operating effectively. Conclude that controls are operating effectively. Conclude that tolerable misstatement has been exceeded. Conclude that CR<DR.When 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 questionsWhich of the following does not increase the need for sufficient appropriate auditevidence?(1) A lower acceptable level of detection risk(2) An increase in the assessed control risk(3) A lower acceptable audit risk(4) A decrease in the assessed inherent risk
- The likelihood that material misstatements may have entered the accounting system and notbeen detected and corrected by the client’s internal control is referred to asa. Inherent risk.b. Control risk.c. Detection risk.d. Risk of material misstatement.The auditors assessed risk of material misstatement at 0.50 and said they wanted to achieve a0.05 risk of failing to express a correct opinion on financial statements that were materiallymisstated. What detection risk do the auditors plan to use for planning the remainder of theaudit work?a. 0.20.b. 0.10.c. 0.75.d. 0.00When 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 risk
