an auditor has established the planned assessed risk of material misstatement for an area of the audit as low
Added by Lauren N.
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This means that the auditor believes there is a low likelihood that the financial statements are materially misstated in that area. Show more…
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During the audit of Glazier LLC, a distributor of glass products throughout the continental United States, it has been determined by the auditor, Locktight CPAs, that the client's system of internal control is not as robust as had been initially thought. As a result of this finding, which of the following strategies is most likely? The auditor will assess risk of material misstatement as high and adopt a reliance approach, whereby the auditor will perform increased substantive testing, including tests of details. The auditor will advise the internal control function to begin remedying defective internal controls, and will return to the audit once these controls have been corrected. The auditor will assess the client's controls as defective, increase the risk of material misstatement and substantive tests, and decrease audit risk. The auditor is likely to assess the risk of material misstatement as high, and rely less on the client's controls. As a result, the auditor will increase substantive testing to compensate for this.
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21. Which of the following is not a consideration when the auditor is attempting to assess the inherent risk? A. Nature of the client's business. B. Existence of related parties. C. Frequency and intensity of top management review. D. Susceptibility to defalcation. 22. Inherent risk is reduced when the likelihood of defalcations is low. This would be true for an account such as: A. Property, plant and equipment. B. Held for trading securities. C. Cash. D. Accounts receivable. 23. Which of the following is an incorrect statement? A. Detection risk is a function of the effectiveness of an auditing procedure and its application. B. Detection risk arises partly from uncertainties that exist when the auditor does not examine 100 percent of the population. C. Detection risk arises partly because of other uncertainties that exist even if the auditor were to examine 100 percent of the population. D. Detection risk exists independently of the audit of the financial statements. 24. Which of the following pertains to detection risk? A. An entity's asset custodian and record-keeping function for cash are handled by one process owner. B. An entity operates in a highly complex business environment. C. An auditor uses substantive analytical procedures instead of tests of balances. D. None of the above. 25. Which of the following statements is correct concerning an auditor's assessment of control risk? A. Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control. B. Evidence about the operation of internal control in prior audits may not be considered during the current year's assessment of control risk. C. The basis for an auditor's conclusions about the assessed level of control risk need not be documented unless control risk is assessed at the maximum level. D. The lower the assessed level of control risk, the less assurance the evidence must provide that the control procedures are operating effectively.
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Michael Green, CPA, is considering Audit Risk at the financial statement level in planning the audit of National Federal Bank (NFB) Company's Financial Statements for the year ended December 31, 20X1. Audit risk at the financial statement level is influenced by the risks of material misstatements (including fraud risks), which may be indicated by a combination of factors related to management, the environment, and the entity. For each of the following factors, indicate whether it increases or decreases the risk of material misstatement and (2) whether it creates a risk of fraud.
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