Risks

Question 1

Inherent Risk

Answer 1

Inherent risk is the susceptibility of an assertion to material misstatement assuming there are no related controls. Assertions involving complex calculations have relatively high inherent risk.

Question 2

Fraud Risk

Answer 2

The risk of material misstatement of the financial statements due to fraud. The auditor is required to evaluate fraud risk, and must consider whether and to what extent fraud risk factors (incentives/pressures, opportunity, and rationalization/attitude)

Question 3

Audit Risk

Answer 3

The risk that the auditor may unknowingly fail to modify appropriately the opinion on financial statements that are materially misstated.

Question 4

Risk of incorrect rejection

Answer 4

Is the risk that a sample mistakenly indicates a material misstatement in an account balance when in fact such balance is fairly stated

Question 5

Detection Risk

Answer 5

The risk that the auditor will not detect a material misstatement that exists in an assertion. Detection risk generally related to the auditor’s procedures.

Question 6

Risk of assessing control risk too low

Answer 6

The risk of assessing control risk too low is the risk that the sample indicates a lower error rate than actually exists in the population at large

Question 7

Risk of assessing control risk to high

Answer 7

The risk of assessing control risk too high is the risk that the sample indicates a greater error rate than actually exists in the population at large