risk

Question 1

how to assess risk

Answer 1

• understanding the entity
• performing analytical review

Question 2

7 types of risk

Answer 2

• audit risk
• material misstatement
• inherent risk
• control risk
• detection risk
• sampling risk
• non sampling risk

Question 3

audit risk

Answer 3

risk an auditor expresses inappropriate audit opinion
includes both risk of material misstatement and detection risk

Question 4

risk of material misstatement

Answer 4

risk that FS are materially misstated before audit starts

Question 5

inherent risk

Answer 5

susceptibility of material misstatement in FS, assuming there were no internal controls

Question 6

control risk

Answer 6

risk that MM not prevented, detected or corrected by internal controls

Question 7

detection risk

Answer 7

risk that audit foes not detect MM, comprised of sampling and NS risk

Question 8

sampling risk

Answer 8

risk that conclusion drawn from results of sample aren’t consistent with conclusion that would’ve been made had al items been tested

Question 9

non sampling risk

Answer 9

risk of drawing wrong conclusion for other reasons

Question 10

5 reasons to perform risk assessment

Answer 10

• identify risks early
• plan procedures to address risky areas
• carry out efficient audit
• reduce risk of giving incorrect opinion
• reduce risk of reputation damage or fines

Question 11

4 risk assessment procedures

Answer 11

• enquiries with management and internal audit function
• analytical procedures
• observations of controls
• inspection of strategic documents