Week 1-2

Question 1

What is Risk?

Answer 1

A threat to an organization that reduces the likelihood that the organization will achieve on or more of its objectives

Question 2

business risk

Answer 2

Threat to an organization not meeting objectives

Question 3

Audit risk

Answer 3

Inappropriate audit opinion

Question 4

engagement risk

Answer 4

Litigation, reputation, profitability

Question 5

Risk respones

Answer 5

Risk assessment (identification, measurement, priotirization)
Risk management (Control it, share or transfer it, diversify or avoid it)
Risk monitoring (Process level, activity level, entity level)

Question 6

Type I error

Answer 6

incorrect rejection  incorrectly reject financial statement have no error, but they do not have an error in reality.

Question 7

Type II error

Answer 7

incorrect acceptation (more important for an auditor)  you incorrectly accept that there are no
errors in financial statement in reality there are. More important to an audit.

Question 8

RMM definition

Answer 8

Risk that financial statements are misstated PRIOR to the audit. Risk
assessment fase of the auditor

Question 9

DR definition

Answer 9

Risk that auditor will not detect a material misstatement.

Question 10

Risk assessment fase of auditor (RMM)

Answer 10

 Business risk
 Susceptibility of assets to theft
 Ease of information manipulation
 Information processing risks
 Non-routine/complex transactions
 Judgement risks estimates
 Internal control limitations

Question 11

Work of audit in gatherinng evidence (DR)

Answer 11

 Samples (sampling risk)
 Select ineffective audit procedures
 Apply procedure ineffective
 Evaluate the results of procedures incorrect

Question 12

Audit risk model, (audit) business risk and audit planning – Houston, Peters and Pratt (1999)

Answer 12

Conclusion
- Likelihood of error high:
o Audit risk model dominates business risk
o No business risk premium
- Likelihood of irregularity high:
o Business risk model dominates audit risk model
o Business risk premium
- Irregularity standard (ISA 240) is incomplete

Question 13

The effects of industry specialization on audit risk assessments and audit planning decision – Kin-Yew Low (2004)

Answer 13

Industry experience..
- Affects modification of audit procedures
- Modifications have higher quality

Question 14

Errors vs irregularities (fraud)

Answer 14

Errors are errors, irregularities are fraud however we call them irregularities because only the judge can conclude if something is truly fraud.