chap 9 relationship of risks to evidence and factors influencing risks

Question 1

when AA risk is low, more extensive review is often warranted, including a review by who?

Answer 1

personnel who were not assigned to the engagement

Question 2

T/F it is difficult to measure the amount of evidence implied by a given planned detection risk

Answer 2

T

Question 3

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

Answer 3

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

Question 4

AA risk varies/stays constant for each major cycle and account

Answer 4

stays constant

Question 5

auditors subjectively evaluate whether what kind of evidence has been planned to satisfy a planned detection risk of low, medium, or high

Answer 5

sufficient appropriate evidence

Question 6

what are 2 examples of when more experienced staff may be needed?

Answer 6

1. a client with low AA risk 2. an audit area has a high inherent risk

Question 7

besides modifying audit evidence, what are the 2 otgher ways that auditors can change the audit in response to risks?

Answer 7

1. the engagement may require more experienced staff 2. the engagement ill be reviewed more carefully than usual

Question 8

like control and inherent risk, what other two things will vary from cycle to cycle, account to account, or audit objective to objective?

Answer 8

1. planned detection risk 2. required audit evidence

Question 9

what would be a case where a lower acceptable audit risk may be more appropriate for one account than for others such as inventory?

Answer 9

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

Question 10

Is changing the level of AA risk for different segments acceptable?

Answer 10

yes

Question 11

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?

Answer 11

the evidence was appropriate and correctly evaluated

Question 12

auditors measurment methods are too imprecise to to permit an accurate _____ measure of the combined evidence

Answer 12

quantitative

Question 13

what is the major limitation of the audit risk model?

Answer 13

the difficulty of measuring the components of the model

Question 14

what is the issue with assessments of AA risk, inherent risk, control risk, and therefore planned deteciton risk?

Answer 14

the assessments of these risks are highly subjective and are only an approximation of reality

Question 15

the audit risk model is primarily a planning model and therefore is of limited use for what?

Answer 15

evaluating result

Question 16

the audit risk model is primarily a ___ model

Answer 16

planning

Question 17

if a revised risk is used in the audit risk model to deermine a revised planned detection risk, there is a danger of what?

Answer 17

not increasing the evidence sufficiently

Question 18

in applying the audit risk model, auditors are concerned about what (2)

Answer 18

under and over auditing

Question 19

why do auditors normally use the same AA risk for each segment?

Answer 19

because factors affecting AA risk are related to the entire audit not individual accounts

Question 20

acceptable audit risk is ordinarily assessed by the auditor when?

Answer 20

during planning

Question 21

what do many auditors do in order to offset the problem of measurment of risks in the risk model?

Answer 21

they use braod and subjective measurement terms like low, medium, and high

Question 22

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?

Answer 22

1. 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

Question 23

the risk of material misstatment is the combo of what risks?

Answer 23

inherent and control risk

Question 24

Auditors primarily respond to risk in what two ways?

Answer 24

1. changing the extent of testing 2. changing the tyupes of audit procedures used, including incorporating unpredictability in the audit procedures used

Question 25

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

Answer 25

vary