Question

1. What is the impact of the following independent factors on the elements of the audit risk model? E.g. increase (I) / decrease (D) / no change (N)

Item	Factor	Acceptable audit risk	Inherent risk	Control risk	Planned detection risk
1	The auditor discovered several material misstatements in the prior year audit
2	Based on prior year tests, the auditor decides to place more reliance on internal control
3	Assessment by the auditor indicates that the client may have going concern problems
4	The audit client conducts several material transactions with related parties
5	The client has changed from a privately-held company to a publicly-held company
6	This is the second year of auditing this client, and the risk assessments may now be less conservative
7	The client does not conduct regular bank reconciliations

Answer 1

Answer :

Item	Factor	Acceptable audit risk	Inherent risk	Control risk	Planned detection risk
1	The auditor discovered several material misstatements in the prior year audit	D	I	I	D
2	Based on prior year tests, the auditor decides to place more reliance on internal control	D	N	N	I
3	Assessment by the auditor indicates that the client may have going concern problems	I	I	I	D
4	The audit client conducts several material transactions with related parties	N	D	D	N
5	The client has changed from a privately-held company to a publicly-held company	D	I	N	I
6	This is the second year of auditing this client, and the risk assessments may now be less conservative	N	N	D	I
7	The Client does not conduct regular bank reconciliations	I	D	I	N

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