Question

1. Give examples of responses to the assessed risk of material misstatement. 2. What is the...

1. Give examples of responses to the assessed risk of material misstatement.

2. What is the relationship of a less than high control risk assessment to the nature, extent, and timing of substantive tests?

3. How are audit matters related to internal control communicated to management and to those charged with governance?

4. When is the control risk assessment High? Less than high?

Homework Answers

Answer #1

1. Examples of responses to the assessed risk of material misstatement are-

i. Transactions that are recorded based on management‘s intent like- debt refinancing, assets to be sold, and classification of marketable securities.

ii. Pending litigation and contingent liabilities Like- sales warranties, financial guarantees, and environmental remediation)

iii. Use of off-balance sheet finance, investments in entities formed to accomplish specific objectives, and other complex financing arrangements.

2. If the auditor plans to assess less than high control risk by relying on controls, and the nature, timing, and extent of planned substantive procedures are based on that lower assessment, the auditor must obtain evidence that the controls selected for testing are designed effectively and operated effectively during the entire period of reliance. However, the auditor is not required to assess control risk at less than high for all relevant assertions and, for a variety of reasons, the auditor may choose not to do so.

3. Auditors are required by ISA 260 to communicate audit matters of governance interest to those charged with governance. It is important that those charged with governance have an understanding of all significant issues that have arisen from the audit process. This implies that the communication should be with the highest level of management, including the executive and non-executive directors, and the audit committee, where relevant. The identity of the relevant person(s) to whom the communication will be addressed may be clarified in the engagement letter.

4. Control risk assessment is High for relevant assertions, for which controls are necessary to sufficiently address the assessed risk of material misstatement in those assertions are missing or ineffective.

Control risk assessment is less than high for relevant assertions when the auditor has not obtained sufficient appropriate evidence.

Tahnks & all the best.........

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Briefly write what the effect of a low risk of material misstatement would have on the...
Briefly write what the effect of a low risk of material misstatement would have on the extent, timing, and nature of substantive tests. Your answer should be no more than 3 sentences long.
An auditor uses the audit evidence provided by the understanding of internal control and the assessment...
An auditor uses the audit evidence provided by the understanding of internal control and the assessment of the risks of material misstatement to determine the nature, timing, and extent of Tests of controls. Compliance requirements. Attribute tests. Further audit procedures.
PLEASE EXPLAIN THE FOLLOWING Understand the audit risk formula and model Understand the relationships between inherent...
PLEASE EXPLAIN THE FOLLOWING Understand the audit risk formula and model Understand the relationships between inherent risk and control risk and risk of material misstatement Understand the relationships between audit risk, Risk of Material Misstatement and detection risk (is it proportional/direct or inverse) If one goes up foes the other go up or down? Understand the impact of changes in inherent risk, control risk, detection risk to substantive testing. If detection or control risks go up or down does an...
An auditor determines that the audit risk is low, the inherent risk is high and the...
An auditor determines that the audit risk is low, the inherent risk is high and the client’s internal controls are not effective. Which of the following conclusions can be reached? A. None of the options is correct. B. Auditors need to perform tests of controls. If the client’s internal control is proven to be effective, reduce the extent of substantive tests. C. Predominantly substantive strategy needs to be used. D. Auditors can choose to use lower assessed control risk strategy....
When there is a significant risk that an account will be misstated and the client's system...
When there is a significant risk that an account will be misstated and the client's system of internal controls is not considered effective at reducing that risk: more high quality evidence is gathered when conducting substantive tests. detection risk is set as low. detection risk is set as high. none of the above. Which of these would be a reason for adopting a predominantly substantive approach? Accounts are affected by more than one transaction class. Detection risk has been assessed...
1. Which of the following best describes the reason why independent auditors report on financial statements?...
1. Which of the following best describes the reason why independent auditors report on financial statements? A management fraud may exist and it is more likely to be detected by independent auditors. An audit provides credibility to the financial statements. A misstatement of account balances may exist and it is generally corrected as the result of the independent auditors' work. Poorly designed internal controls may be present. 2. Audits of financial statements are designed to obtain reasonable assurance of detecting...
1.The acceptable level of detection risk is inversely related to the A. Risk of misapplying auditing...
1.The acceptable level of detection risk is inversely related to the A. Risk of misapplying auditing procedures. B. Preliminary judgment about materiality levels. C. level of assurance provided by the planned audit evidence from substantive tests. D. level or assurance provided by the planned audit evidence from tests of controls 2.The degree of detection risk present in an audit engagement is referred to as a combination of non-sampling and sampling risk. Which of the following is an example of non-sampling...
A walkthrough is: a brief tour of a client's office, warehouses, manufacturing and other operating facilities...
A walkthrough is: a brief tour of a client's office, warehouses, manufacturing and other operating facilities consists of the auditor following one or more transactions through the entire accounting process normally used to obtain substantive evidence as to whether an account is fairly presented performed near the end of the audit to be satisfied that all relevant assertions have been tested Substantive tests: are procedures designed to test for monetary misstatements in financial statement accounts and disclosures are used to...
What is the impact of the following independent factors on the elements of the audit risk...
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...
If the auditor’s assessment of audit risk is low (e.g., 1% rather than 5%), what is...
If the auditor’s assessment of audit risk is low (e.g., 1% rather than 5%), what is the effect on the amount of substantive testing performed by the auditor? a. Increase in substantive testing. b. Decrease in substantive testing c. No change in substantive testing. Which of the following is the control is not effective and would likely change the auditor’s planned assessment of control risk in performing tests of account balances? a. Tolerable failure rate. b. Allowable risk of assessing...