4.02 - AUDIT RISK, F/S LEVEL AND ASSERTION LEVEL

Question 1

4.02 - AUDIT RISK, F/S LEVEL AND ASSERTION LEVEL

As the acceptable level of detection risk decreases, an auditor may

A) Reduce substantive testing by relying on the assessments of inherent risk and control risk.

B) Lower the assessed level of control risk from the maximum level to below the maximum.

C) Eliminate the assessed level of inherent risk from consideration as a planning factor.

D) Postpone the planned timing of substantive tests from interim dates to the year-end

Answer 1

D) Postpone the planned timing of substantive tests from interim dates to the year-end

A decrease in the acceptable level of detection risk indicates that the auditor must obtain more extensive amounts of
evidence, evidence that is more reliable in nature, and evidence that relates to transactions and balances closer to year-end.

The assessment of inherent risk is not eliminated from consideration, since a high inherent risk will necessitate a lower detection risk.

The level of control risk affects the risk of material misstatement, which affects detection risk, not the other way around.