Question

In: Accounting

Are the following statements true or false, and why? 1- The main factor in determining acceptable...

Are the following statements true or false, and why?

1- The main factor in determining acceptable audit risk is the assessed level of control risk and inherent risk. 2- If inherent risk increases for a client, then control risk will increase 3- If planned detection risk increases for a client and other things remain equal, less audit evidence collection and testing will be required

Solutions

Expert Solution

1- The main factor in determining acceptable audit risk is the assessed level of control risk and inherent risk. TRUE Audit Risk   =   Inherent Risk   x   Control Risk   x   Detection Risk
2- If inherent risk increases for a client, then control risk will increase TRUE Inherent Risk is the risk of a material misstatement in the financial statements arising due to error or omission as a result of factors other than the failure of controls while
Control Risk is the risk of a material misstatement in the financial statements arising due to absence or failure in the operation of relevant controls of the entity.
3- If planned detection risk increases for a client and other things remain equal, less audit evidence collection and testing will be required TRUE Based on evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor could
decrease detection risk.

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