Audit Risk

Question 1

What is the risk that the auditor may unknowingly fail to appropriately modify the opinion on financial statements that are materially misstated?

Answer 1

Audit risk

Question 2

What does misstatements include?

Answer 2

Inaccuracies, Departures from generally accepted accounting principles, omissions, incorrect estimates or judgments, and inappropriate selection or application of accounting policies

Question 3

What are misstatements about which there is no doubt?

Answer 3

Factual misstatements

Question 4

What misstatements are differences arising from the judgments of management concerning accounting estimates that the auditor considers unreasonable or the selection or application of accounting policies that the auditor considers appropriate?

Answer 4

Judgmental misstatements

Question 5

What misstatements are the auditor’s best estimate of misstatements in populations involving the projection of misstatements identified in audit samples to the entire population from which the samples were drawn?

Answer 5

Projected misstatements

Question 6

What is the audit risk model equation?

Answer 6

Audit risk = Risk of material misstatement x Detection risk

Question 7

What is the equation for risk of material misstatement?

Answer 7

Inherent risk x Control risk

Question 8

What is the susceptibility of a relevant assertion to a material misstatement, assuming there are no related controls?

Answer 8

Inherent risk

Question 9

What is the risk that a material misstatement that could occur in a relevant assertion will not be prevented or detected on a timely basis by the entity’s internal control?

Answer 9

Control risk

Question 10

What is the risk that the auditor will not detect a material misstatement that exists in a relevant assertion?

Answer 10

Detection risk