Chapter 9

Question 1

What is business risk?

Answer 1

Risk Inherent to the company and its operations. Including risks at all levels of the business.

Question 2

What is ISA 315?

Answer 2

Risk resulting from significant conditions events circumstances, actions or inactions that could adversely affect an entity ability to achieve its objectives and execute strategies or from setting of inappropriate objectives and strategies

Question 3

What is business risk made out of (3 components)

Answer 3

Financial risk
Operational risk
Compliance risk

Question 4

What is Inherent risk?

Answer 4

susceptibility of an assertion to misstatement that could be material, individual or when aggregated with other misstatement assuming that there were no related internal controls

Question 5

What is Control risk?

Answer 5

Risk that a misstatement could occur in an assertion and that could be material, individually or when aggregated with other misstatements, will not be prevented or detected and corrected on a timely basis by the entity internal control

Question 6

What is detection risk?

Answer 6

Risk an auditors procedures won’t detect a misstatement that exists in an assertion that could be material, individually or when aggregated with other misstatements.

Question 7

What is non sampling risk?

Answer 7

Possibility of coming to the wrong conclusion about FS for any other reason;

• lack of understanding of nature of your clients business
• Use of invalid sampling techniques
• Failure to investigate a particular class of assets, liabilities, or transactions

Question 8

What is a significant risk?

Answer 8

Risk of material misstatement that in the auditors judgement requires special audit consideration.

Question 9

What does it mean if acceptable level of audit risk is 5%

Answer 9

5% chance of invalid conclusion being drawn after all procedures completed
95% confident that audit opinion will be valid