Explain what is meant by the following?
Item
Explanation
Low acceptable audit risk
Low assessed control risk for a transaction-related audit objective, e.g. occurrence of sales
High inherent risk for a transaction-related audit objective, e.g. completeness of sales
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
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