Explanation Audit Risk: The risk that arises when an auditor does not find any misstatement presented in a financial report and declares the report as correct is known as audit risk. In other words, when the auditor gives the statement that reports are materially correct but in actual they contain some errors. There are three components of audit risk which are inherent risk, control risk and detection risk. These risks can be explained as follows: Inherent risk is the risk which arises due to variability in valuation of company’s position For instance; auditor is incapable of valuating the gold as its prices are uncertain. In such cases, it is difficult to assess the financial statements correctly. The risk arising due to inherent nature of business is known as inherent risk. Control risk is the risk that arises due to inefficient controlling efforts taken by the management while preparing accounts. Detection risk is the risk that arises due to auditor’s ignorance while pre-determining the acceptance level of risk...

10th Edition

ISBN: 9781337619202

Author: Hall, James A.

Publisher: Cengage Learning,

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Question

Chapter 14, Problem 4RQ

To determine

Explain the difference between inherent and control risk. What are the affects of internal control on inherent risk and control risk? Also explain the role of detection risk.

Expert Solution & Answer

Chapter 14 Solutions

Accounting Information Systems

Ch. 14 - Prob. 1RQ Ch. 14 - Prob. 2RQ Ch. 14 - Prob. 3RQ Ch. 14 - Prob. 4RQ Ch. 14 - Prob. 5RQ Ch. 14 - Prob. 6RQ Ch. 14 - Prob. 7RQ Ch. 14 - Prob. 8RQ Ch. 14 - Prob. 9RQ Ch. 14 - Prob. 10RQ

Ch. 14 - What are the three primary IT functions that must...Ch. 14 - Prob. 12RQ Ch. 14 - Prob. 13RQ Ch. 14 - What are the primary reasons for separating...Ch. 14 - Prob. 15RQ Ch. 14 - Prob. 16RQ Ch. 14 - Prob. 17RQ Ch. 14 - Prob. 18RQ Ch. 14 - Prob. 19RQ Ch. 14 - Prob. 20RQ Ch. 14 - Prob. 21RQ Ch. 14 - Prob. 22RQ Ch. 14 - Prob. 23RQ Ch. 14 - Prob. 24RQ Ch. 14 - Prob. 25RQ Ch. 14 - Prob. 26RQ Ch. 14 - Prob. 27RQ Ch. 14 - Prob. 28RQ Ch. 14 - Prob. 29RQ Ch. 14 - Prob. 30RQ Ch. 14 - Prob. 31RQ Ch. 14 - Prob. 32RQ Ch. 14 - Distinguish between errors and irregularities....Ch. 14 - Prob. 34RQ Ch. 14 - Prob. 35RQ Ch. 14 - Prob. 36RQ Ch. 14 - Prob. 37RQ Ch. 14 - Prob. 38RQ Ch. 14 - Prob. 39RQ Ch. 14 - Define commodity IT asset.Ch. 14 - Prob. 41RQ Ch. 14 - Prob. 42RQ Ch. 14 - Prob. 1DQ Ch. 14 - Prob. 2DQ Ch. 14 - Prob. 3DQ Ch. 14 - Prob. 4DQ Ch. 14 - Prob. 5DQ Ch. 14 - Prob. 6DQ Ch. 14 - Prob. 7DQ Ch. 14 - Prob. 8DQ Ch. 14 - Prob. 9DQ Ch. 14 - Prob. 10DQ Ch. 14 - Prob. 11DQ Ch. 14 - Who should determine and prioritize the critical...Ch. 14 - Prob. 13DQ Ch. 14 - Define the management assertions of existence or...Ch. 14 - Prob. 15DQ Ch. 14 - Prob. 16DQ Ch. 14 - Prob. 17DQ Ch. 14 - Prob. 18DQ Ch. 14 - Prob. 19DQ Ch. 14 - Prob. 20DQ Ch. 14 - Prob. 21DQ Ch. 14 - Prob. 22DQ Ch. 14 - Prob. 23DQ Ch. 14 - Explain how IT outsourcing can lead to loss of...Ch. 14 - Prob. 25DQ Ch. 14 - Prob. 26DQ Ch. 14 - Prob. 27DQ Ch. 14 - Prob. 1MCQ Ch. 14 - Prob. 2MCQ Ch. 14 - Prob. 3MCQ Ch. 14 - Prob. 4MCQ Ch. 14 - Prob. 5MCQ Ch. 14 - Prob. 6MCQ Ch. 14 - Prob. 7MCQ Ch. 14 - Prob. 8MCQ Ch. 14 - Prob. 9MCQ Ch. 14 - Prob. 10MCQ Ch. 14 - Prob. 1P Ch. 14 - Prob. 2P Ch. 14 - Prob. 3P Ch. 14 - Prob. 4P Ch. 14 - Prob. 5P Ch. 14 - Prob. 6P Ch. 14 - DISASTER RECOVERY PLAN Hexagon is an online...Ch. 14 - Prob. 8P Ch. 14 - Prob. 9P Ch. 14 - Prob. 10P Ch. 14 - Prob. 11P Ch. 14 - Prob. 12P Ch. 14 - Prob. 13P

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Similar questions

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?
Distinguish between entity-wide and transaction controls. Which components of internal control are typically entity-wide controls? Which components of internal control are typically transaction controls?

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