Question

Mark each of the following sentences with (Yes or No) in the table below:

1. Auditing standards provide for the audit risk model as a way of ensuring that the risk of ensuring materiality misstated financial statements is kept to an acceptable low level.
2. The reference to term “in all material respects” in the audit report opinion graph is a must in the audit report.
3. If the auditor believes that the concern will not continue as going concern, he should issue disclaimer of opinion.
4. Components of Audit Risk does not includes sampling risk.
5. The cut off audit objective implies that all transactions are included in the account.
6. Substantive audit strategy may adopted by the auditor if he concludes the internal control is highly reliable.
7. The main audit risk associated with the use of information technology is the validity of data processed.
8. Attributes sampling is an examination used for only control tests.
9. Information technology presents a challenge to the management of the client which may cause the auditor to widen the services range he renders.
10. Sufficient evidence to be obtained is a common fieldwork standard for attestations and GAASs.
11. Assurance services that improve the quality of information within the bounds of Generally Accepted Auditing Standards(GAAS).
12. In case AR=60%,Auditee risk=40%,the Detection risk is 24%.

Answer 1

S.No.	Sentences	Yes/No
1.	Auditing standards provide for the audit risk model as a way of ensuring that the risk of ensuring materiality misstated financial statements is kept to an acceptable low level.	Yes
	Explanation: Audit risk model is a tool used by auditors to understand the relationship between various risks arising from an audit engagement enabling them to manage the overall audit risk. Auditor’s goal is to reduce overall audit risk to an acceptable level.
2.	1. The reference to term “in all material respects” in the audit report opinion graph is a must in the audit report.	Yes
	Explanation: As per SA 700, the auditor should form and express an audit opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained and to express clearly that opinion through a written report.
3.	2. If the auditor believes that the concern will not continue as going concern, he should issue disclaimer of opinion.	No
	3. Explanation: If the auditor believes that the concern will not continue as going concern, then the auditor should ensure that the valuation of assets and liabilities of financial statements are at their recoverable amount and if that is complied with, then he should issue unqualified opinion along with a Emphasis of Matter Paragraph.
4.	4. Components of Audit Risk do not include sampling risk.	Yes
	Explanation: The three components of Audit Risk are Inherent Risk, Control Risk and Detection Risk. Sampling risk is not a component of audit risk.
5.	5. The cut off audit objective implies that all transactions are included in the account.	No
	Explanation: Audit objective that ensure that all the transactions are included in the account is Completeness. While, Cut-off ensures that transactions and events have been recorded in the correct accounting period..
6.	6. Substantive audit strategy may adopted by the auditor if he concludes the internal control is highly reliable.	No
	Explanation: If the internal control is highly reliable, that means the risks of misstatements that could not detect by control are low. The substantive audit testing really depends on the conclusion of internal control testing. Technically, if the controls are concluded by auditors as strong, then auditors will not do many works on substantive testing. That means fewer samples will be tested and verified.
7.	7. The main audit risk associated with the use of information technology is the validity of data processed.	Yes
	Explanation: While performing the audit with the use of information technology, there are many audit risks faced by auditor which should be mitigated by him. One such risk is validity of data processed, the input entered into the system should be valid.
8.	8. Attributes sampling is an examination used for only control tests.	Yes
	Explanation: Attributes sampling is the statistical process that helps determine whether internal controls are being followed. Attributes sampling is used to test the effectiveness of internal controls, but on rare occasions it is also used in substantive testing.
9.	9. Information technology presents a challenge to the management of the client which may cause the auditor to widen the services range he renders.	Yes
	Explanation: Information technology presents a challenge to the management of the client which causes the auditor to widen the services range he renders. Such services may include information system audit.
10.	Sufficient evidence to be obtained is a common fieldwork standard for attestations and GAASs.	Yes
	Explanation: In order to provide assurance under attestations and GAASs, sufficient evidence should be collected to improve the reliability of the documents or statements on which assurance services are provided.
11.	10. Assurance services that improve the quality of information within the bounds of Generally Accepted Auditing Standards(GAAS).	Yes
	11. Explanation: GAASs are a set of systematic guidelines used by auditors when conducting audits on companies' financial records. GAAS helps to ensure the accuracy, consistency, and verifiability of auditors' actions and reports. Assurance services tend to improve the quality of information within the bounds of GAAS.
12.	12. In case AR=60%, Auditee risk=40%, the Detection risk is 24%.	No
	Explanation: Audit Risk = Inherent Risk × Control Risk × Detection Risk Auditee risk is the risk of material statement. i.e., Inherent Risk × Control risk 13. If AR=60%, Auditee risk=40%, the Detection risk is 24% 60% is not equal to 40% * 24%. Hence, this statement is false.