Question

1. Using the audit risk model, identify the relationship between the following elements. For each of the items below, highlight whether the two elements have an inverse relationship, a direct relationship, or no relationship. When considering each item, assume that the other components of the risk model remain constant.

1. Engagement Risk and Acceptable Audit Risk
2. Assessed Inherent Risk and Planned Detection Risk
3. Materiality and Amount of substantive evidence needed
4. Assessed Inherent Risk and Assessed Control Risk
5. Acceptable Audit Risk and Assessed Control Risk
6. Amount of substantive evidence collected and Achieved Detection Risk
7. Actual Inherent Risk and Actual Control Risk
8. Achieved Detection Risk and Achieved Audit Risk

Answer 1

Engagment risk and acceptable audit risk  

In simple terms, Audit risk is the risk that an auditor will issue an unqualified opinion on materially misstated Financial statement while engagement risk related to auditors exposure to financial loss and damage to his/her professional reputation.

Assessed inherent risk and Planned detection Risk

Inherent risk is the risk of material misstatement in a company's financial statemnet without considering internal control.

Detection risk is the risk,that the auditor would not detect a material misstatement in an organization's financial statement.

Materiality and Amount of substansive evidence

Materiality is the information that if omitted, Misstated or not disclosed has the potential to adversely affect the decision a bount the allocation of scarce resources by the users of financial report.

Audit evidence ; inorder for the auditor to form an opinion, sufficient and appropriate audit evidence must be gathered

Assessed inherent risk and Assessed control risk

Inherent risk is one factor along with control risk that an auditor uses to assess the risk of material misstatement associated with a particular financial satatement.

Control risk is the risk of material misstatement in the finacial statement arising due to absence or failure in the operation of relent controls of the entity.

Acceptable audit risk and Assessed control risk

Acceptable audit risk is the risk that the auditor is willing to take of giving an unqualified opinion when the financial statements are materially misstated.

Assessed control risk is the process of evaluating the effectiveness of an entity's internal control structure in preventing or detecting material misstatement in the financial statement.

Amount of substansive evidence collected and achieved detection risk

Substansive evidence is the evidence on the basis of which a fact is proved and which require no corroboration

Detection risk is the chance that an auditor will fail to find material mistatement that exist in an entity's financial statement

Actual inherent risk and actual control risk

inherent risk is the risk posed by an error or omission in a financial statement due to a factor other than a failure of internal control.

Control risk is the chance of a material misstatement in a company's financial statements because there aren't any relevant internal controls to mitigate a particular risk or the internal controls in place malfunctioned.

Achieved detection risk and achieved audit risk

Detection risk is the chance that an auditor will fail to find material misstatements that exist in an entity's financial statements.

Audit risk is the actual level of risk, after the audit is completed and an unqualified opinion issued, that the statements are materially misstated.