Sec 3200 Understanding the entity and its environment, including internal control

Question 1

Risk of material misstatement

Answer 1

Normally varies with the complexity and subjectivity associated with the process; availability and reliability of relevant data; number and significance of assumptions that are made; and degree of uncertainty associated with the assumptions.

Question 2

Detection Risk

Answer 2

increases when an auditor performs substantive analytical audit procedures for financial statement accounts at an interim date.

Question 3

Audit of financial statements

Answer 3

Here, the auditor’s primary consideration regarding an internal control policy or procedure is whether the policy or procedure affects management’s financial statement assertions.

Question 4

Decrease in the amount of misstatements

Answer 4

When an auditor lowers the amount of tolerable misstatement, a more careful audit is planned to detect small misstatements. Only the performing of the planned auditing procedures closer to the balance sheet date results in a more careful audit.

Question 5

Internal control

Answer 5

A process effected by the entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives of reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.