Question

Sasha Goldberg, CPA, is considering various risks in planning the audit of Levine Financial, a securities firm that has recently experienced difficulty due to the global financial crisis.

Question 4 options:

12345	Increase control risk
12345	Increase inherent risk
12345	Decrease control risk
12345	Have no effect on risk related to the audit
12345	Decrease inherent risk

Levine replaced a member of the audit committee with an outside board member with significantly more financial experience.
2.	The internal auditor for Levine reports directly to the CFO.
3.	Levine was able to increase coverage of their liability insurance by changing the insurance provider.
4.	Levine has been operating at a loss, but the turnaround in the economy will result in a profitable year.
5.	Levine has received a letter from a federal agency responsible for oversight requesting records of transaction for several significant customer accounts.

Answer 1

1	Decrease control risk	Levine replaced a member of the audit committee with an outside board member with significantly more financial experience.
2	Increase control risk	The internal auditor for Levine reports directly to the CFO.
3	Have no effect on risk related to the audit	Levine was able to increase coverage of their liability insurance by changing the insurance provider.
4	Decrease inherent risk	Levine has been operating at a loss, but the turnaround in the economy will result in a profitable year.
5	Increase inherent risk	Levine has received a letter from a federal agency responsible for oversight requesting records of transaction for several significant customer accounts.