1.11 Audit Risk

Question 1

What is audit risk

Answer 1

The risk that the Auditor me unknowingly down to appropriately modify the opinion on financial state that are material only missed stated

Question 2

What are the components of audit risk

Answer 2

Risk of material miss statement

Detection risk

Question 3

What does risk of material miss statement RMM consist of

Answer 3

Inherent risk and control risk

Question 4

What is inherent risk

Answer 4

The risk that a material is statement of an assertion will occur in the absence of any internal controls

Cash is an example

Question 5

What is control risk

Answer 5

Risk that the clients internal control will not detect a material miss statement

Question 6

What is detection risk

Answer 6

Risk that the audit procedures will incorrectly lead to the conclusion that I material miss statement does not exist when in fact when does

Question 7

What are the two components of Detection risk

Answer 7

Test of details TD

Substantive analytical procedures risk. AP

Question 8

With regard to risk when can failure of the audit at her

Answer 8

When to component risk events occur together

Question 9

What is the formula for audit risk

Answer 9

Audit risk = inherent riskxcontrol riskxdetection risk

AR=[RMM(IR x CR) x DR

AR=(IR X CR) x(TD x AP)

Question 10

What is the relationship between detection risk and risk of material miss statement

Answer 10

Inverse relationship

Greater RMM the auditor believes exists the less detection risk that can be accepted and vice versa

Question 11

What is the relationship between reliance and RMM

Answer 11

Reliance down
RMM up
Detection risk down
Substantive test up

Reliance up
RMM down
Detection risk up
Substantive test down

Question 12

Inherent risk in control risk differ from detection risk in that they exist

Answer 12

Independently of the audit

Question 13

How can detection risk the altered

Answer 13

By adjusting the nature of timing and extent of substantive procedures

It relates to the auditors procedure

Question 14

What procedures does an audit of the form with regard to detection risk

Answer 14

Determine acceptable level of audit risk

Assess the risk of material miss statement

Determine the level of detection risk that is necessary to achieve the desired audit risks

Question 15

How long does an auditor assess the risk of material miss statement

Answer 15

Evaluating inherent risk associated with financial statements

Assess control risk based on the auditors understanding of internal control

Question 16

How can the components of the audit risk model Be assessed

Answer 16

Quantitative terms such as percentages

Nonquantitative terms such as high medium or low risk

Question 17

Fraud and errors AU-C 240

Answer 17

The auditors responsibility is to plan in the form the audit to obtain a reasonable shores that new errors or accept broadhead cause the financial statements to be materially mistated

Question 18

What does a miss statement mean with regard to Fraud and errors

Answer 18

Omission a financial statement element account or item

Financial statement disclosure that’s not presented in accordance to gaAP

Omission of information required to be disclosed in accordance with GAAP

Difference between how an item has been reported in FSU and how it would have been reported under GAAP

Question 19

Examples of how misstatements can be evaluated quantitatively

Answer 19

Those that affect profitability trends

change losses in the income

Affect segment information

Affect compliance with the legal and contractual requirements

Question 20

What are the effects of estimates with regard to the risk of material misstatements

Answer 20

Involve the use of estimates subject to human error

are susceptible to manipulation

Question 21

What are the two types of fraud

Answer 21

Fraudulent financial reporting

Miss appropriation of assets

Question 22

What is fraud

Answer 22

And intentional acts by one or more individuals that results in a miss statement on the financial statements

Question 23

What is fraudulent financial reporting

Answer 23

Management fraud or cooking the books

Question 24

What is misappropriation of assets

Answer 24

Embezzlement of funds
Theft of other assets
Miss use of entity assets

Question 25

What are the two types of miss statements resulting from errors or frauds

Answer 25

Known miss statements | Likely miss statements

Question 26

Define known misstatements

Answer 26

Miss statements specifically identified during the audit

Question 27

Define likely miss statements

Answer 27

Miss statements that have not been specifically identified but are considered likely to exist

Question 28

What are likely miss statements based on

Answer 28

Audit evidence obtained Due to difference between management in auditors judgments

Question 29

Auditors must communicate oh moon and likely miss statements if any material identified during the audit to whom

Answer 29

Appropriate level of management

Question 30

How should know and likely miss statements be handled by management

Answer 30

Known must be corrected Likely should be evaluated

Question 31

What are the three Conditions that are assumed to be present whenever a successful fraud occurs

Answer 31

Reason or motivation Opportunity Rationalization

Question 32

How should knowledge or suspicion of noncompliance with applicable laws and regulations(AU-C 250) be Treated

Answer 32

Communicate to those charges governance all but those that are clearly inconsequential

Question 33

What is the difference between illegal acts that have a direct effect and an indirect effect

Answer 33

Direct effect are corrected with adjusting entries Indirect effect generally result in contingencies