chap 9 relationship of risks to evidence and factors influencing risks Flashcards
when AA risk is low, more extensive review is often warranted, including a review by who?
personnel who were not assigned to the engagement
T/F it is difficult to measure the amount of evidence implied by a given planned detection risk
T
although it is common to assess inherent and control riks for each balance related audit objective, it is not common to allocate _____ to those objectives. why not
materiality it is too difficult to determine how much of the materiality allocated to a given account should in turn be allocated to one or two objectives
AA risk varies/stays constant for each major cycle and account
stays constant
auditors subjectively evaluate whether what kind of evidence has been planned to satisfy a planned detection risk of low, medium, or high
sufficient appropriate evidence
what are 2 examples of when more experienced staff may be needed?
- a client with low AA risk 2. an audit area has a high inherent risk
besides modifying audit evidence, what are the 2 otgher ways that auditors can change the audit in response to risks?
- the engagement may require more experienced staff 2. the engagement ill be reviewed more carefully than usual
like control and inherent risk, what other two things will vary from cycle to cycle, account to account, or audit objective to objective?
- planned detection risk 2. required audit evidence
what would be a case where a lower acceptable audit risk may be more appropriate for one account than for others such as inventory?
the auditor might use medium AA risk for the audit as a whole but reduce AA risk to low for inventory if it is used as collateral for a short term loan
Is changing the level of AA risk for different segments acceptable?
yes
if the risk of material misstatment is high for certain audit objectives for an account, the reviewer will spend more time making sure that what?
the evidence was appropriate and correctly evaluated
auditors measurment methods are too imprecise to to permit an accurate _____ measure of the combined evidence
quantitative
what is the major limitation of the audit risk model?
the difficulty of measuring the components of the model
what is the issue with assessments of AA risk, inherent risk, control risk, and therefore planned deteciton risk?
the assessments of these risks are highly subjective and are only an approximation of reality
the audit risk model is primarily a planning model and therefore is of limited use for what?
evaluating result
the audit risk model is primarily a ___ model
planning
if a revised risk is used in the audit risk model to deermine a revised planned detection risk, there is a danger of what?
not increasing the evidence sufficiently
in applying the audit risk model, auditors are concerned about what (2)
under and over auditing
why do auditors normally use the same AA risk for each segment?
because factors affecting AA risk are related to the entire audit not individual accounts
acceptable audit risk is ordinarily assessed by the auditor when?
during planning
what do many auditors do in order to offset the problem of measurment of risks in the risk model?
they use braod and subjective measurement terms like low, medium, and high
what is the 2 step approach that should be used when the aauditor decides , on the basis of accumulated evidence, that the original assessment of control or inherent risk was understated or AA risk was overstated?
- revise the original assessment of the appropriate risk. it violates due care to leave the original assessment unchanged if you know it is inappropriate 2. consider the effect of the revision on evidence requirements, without use of the audit risk model and modify evidence appropriately
the risk of material misstatment is the combo of what risks?
inherent and control risk
Auditors primarily respond to risk in what two ways?
- changing the extent of testing 2. changing the tyupes of audit procedures used, including incorporating unpredictability in the audit procedures used
the assessments for inherrent and control risk are likely to vary/stay the same on the same audit from cycle to cycle, account to account, and objective to objective
vary
