Midterm Week 4

Question 1

What is audit risk?

Answer 1

the risk an auditor expresses a inappropriate opinion when financial statements are material misstated

Question 2

What is the audit risk calculation?

Answer 2

AR = DR x IR x CR

Question 3

What is low detection risk? high detection risk?

Answer 3

Low: The risk level is lower, less auditing work, between for the company
High: risk is higher, more auditing work involved , worse for company

Question 4

what is materilaity?

Answer 4

the maximum amount that is allowed to be disclosed in a financial statement that does not impact the users. what the max is set as is the importance to the user

Question 5

what is the audit risk model?

Answer 5

inherent risks and errors go through controls and become less, any errors left go through the audit procedures and any leftover is the audit risk (Diagram)

Question 6

What does the AR, IR, CR and DR mean in the audit risk equation?

Answer 6

Audit Risk = Inherent Risk x Control Risk x Detection Risk

Question 7

If a client is high risk would their inherent, control and detection risk be low or high?

Answer 7

IR = High 
CR = High 
DR = Low

Question 8

If a client is low risk would their inherent, control and detection risk be low or high?

Answer 8

IR = Low
CR= Low
DR= High

Question 9

what is inherent risk?

Answer 9

likelihood of material misstatement before internal controls

Question 10

what is control risk?

Answer 10

likelihood of material misstatement after internal controls

Question 11

what are characteristics of materiality?

Answer 11

• would change users mind
• size nature and circumstances are considered
• cant meet individual needs

Question 12

what are the steps for determining materiiality?

Answer 12

determining users
picking appropriate benchmark
determine is any adjustments are needed