Give me your own definition and examples of audit risk and itsthree components: inherent risk, control risk and detection risk.Please be specific and in-detail.

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Casey DurganLv2

28 Sep 2019

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1)An inaccurate form of the audit risk model would show that

A) audit risk is directly related to all other risks in themodel.

B) increases in control risk will cause decreases in detectionrisk.

C) detection risk may be determined from audit risk, inherentrisk, and control risk.

D) detection risk is inversely related to inherent risk.

E) detection risk is inversely related to audit risk.

2)Specific audit objectives are normally

A)developed for each item in the financial statements andderived from the categories of managementâs financial statementassertions.

B)derived from the categories of managementâs financialstatement assertions.

C)developed for each item in the financial statements.

D) the same as the categories of managementâs financialstatement assertions.

Hello - can you assist with this problem please:

You have been assigned to be the audit senior for the WineEmporium. Based on the client's industry, you have setthe inherent risk as low. You are also setting the control risk aslow given that the owners of the Wine Emporium, Paul and Linda,have put many robust controls in place since buying the Emporium.You also had good success in auditing controls as well as endingfinancial statement balances in the prior yearaudit.

Based on this assessment of inherent risk and control risk, whatrisk level would you assign to detection risk? How would thisdetection risk level impact the nature, extent and timing of theprocedures you would perform? For this second question, pleasespecifically address how you would approach all three of theseaspects of your testing (nature, extent and timing) in youranswer.

When planning a financial statement audit, a CPA must understandaudit risk and its components. The firm of Pack & Peckevaluates the risk of material misstatement (RMM) by disaggregatingRMM into its two components: inherent risk and control risk.

Required:

For each illustration, select the component of audit risk that ismost directly illustrated. The components of audit risk may be usedonce, more than once, or not at all.

Note if each illustration below is Control risk, Detectionrisk or Inherent risk

1. A client fails to discover employee fraud on a timely basisbecause bank accounts are not reconciled monthly.
2. Cash is more susceptible to theft than an inventory ofcoal.
3. Confirmation of receivables by an auditor fails to detect amaterial misstatement.
4. Disbursements have occurred without proper approval.
5. There is inadequate segregation of duties.
6. A necessary substantive audit procedure is omitted.
7. Notes receivable are susceptible to material misstatement,assuming there are no related internal controls.
8. Technological developments make a major product obsolete.
9. The client is very close to violating debt covenants.
10. XYZ Company, a client, lacks sufficient working capital tocontinue operations.

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