Identifying, Assessing, and Responding to Risk

Question 1

Significant Risk

Answer 1

exists when inherent risk is exceptionally high.

Question 2

Nature

Answer 2

includes both its purpose and its type.

inspection, observation, inquiry, confirmation, recalculation, re performance, or analytical procedure.

Question 3

Extent

Answer 3

refers to the quantity to be performed

Question 4

Timing

Answer 4

• audit test performed at an interim date or at period end

- higher RMM the closer testing should be at period end.

Question 5

Test of Controls

Answer 5

• substantive procedures do not do the job. Use test of control
• inquires, observation, inspection, and re performance
• inquire alone is not efficient
• evaluates whether control is operating effectively
• use when auditor believes control is likely to prevent RMM
• Ex.Company uses all IT for record keeping, assertions are day to day, automated processing, audit evidence is obtained in electronic form.

Question 6

Substantive Approach

Answer 6

-only use substantive approach when control risk is assessed at a max.
Ex. no effective controls relative to the specific assertion,controls are ineffective, not efficient to test controls.

Question 7

Significant Risk

Answer 7

• only inherent risk is high, no control risk considered.