week 1 - audit 3

Question 1

What happens if Inherent Risk (IR) and Control Risk (CR) decrease?

Answer 1

If IR & CR decrease, Detection Risk (DR) can increase, allowing for a decrease in substantive testing.

Question 2

What does a lower Detection Risk (DR) indicate?

Answer 2

A lower DR means the probability of substantive procedures failing to detect material misstatements is low, leading to a more thorough audit process.

Question 3

What is analytical review in auditing?

Answer 3

Analytical review involves evaluating financial information through analysis of plausible relationships among both financial and non-financial data (ISA 520, para 3).

Question 4

How is analytical review used in auditing?

Answer 4

Analytical procedures are important risk assessment tools used to understand the client and environment, assess going concern issues, and are mandatory at the planning and final review stages of an audit.