Chapter 5 Part 2

Question 1

Auditors must communicate significant deficiencies and material weaknesses that come to their attention in the performance of the audit to management, the board of directors, or its audit committee. Auditors often issue a type of report to management called a management letter. This letter may contain commentary and suggestions on a variety of matters in addition to internal control matters.

Answer 1

What reports (other than auditors’ report) on internal control do audit teams give to an entity’s management, board of directors, or audit committee?

Question 2

MUST gain an understanding to the environment and not share the knowledge of it

Answer 2

What is control environment

Question 3

AR = IR x CR x DR
(IR x CR = Risk of Material Misstatement (RMM))
DR = AR / RMM

Answer 3

Audit Risk Model

Question 4

risk that an organization will fail to achieve its’ goals and objectives

Answer 4

Business Risk

Question 5

risk that relates to the recording of transactions and the presentation of financial data in an organizations financial statements

Answer 5

Financial Reporting Risk

Question 6

Risk that auditors face by being associated with an audit and a particular client, includes loss of reputation, financial loss etc.

Answer 6

Engagement Risk

Question 7

Risk that an auditor provides an unqualified opinion on financial statements that are materially misstated

Answer 7

Audit Risk