Audit risk is comprised of inherent risk, control risk, and detection risk. Depending on how the audit team assesses control risk, they would set detection risk, which determines the level of substantive testing that should be performed. To assess control risk, the audit team would use attribute sampling to determine if the controls were operating effectively. Show  Attribute Sampling – Controls Testing As mentioned above, when an audit team is testing controls, they would perform attribute sampling to understand if the control works or doesn’t work. The whole point of performing controls testing is to assess control risk. If control risk is high, then the audit team team would conclude that controls are not operating effectively and they will not rely the company’s internal controls. If control risk is low, then the audit team would conclude that controls are operating effectively. Now there is a risk that the audit team incorrectly assesses the company’s internal controls. They can either deem control risk to be too high or control risk to be too low. Control risk too high = Inefficient audit: This means that the audit team felt that controls were not designed and operating effectively, so they won’t rely on the internal controls. As a result, the audit team would have to lower detection risk and perform more substantive testing procedures (which costs more time and money). However, since control risk could have been set lower, then the team performed more substantive testing procedures than necessary, which means they essentially over audited. Control risk too low = Ineffective audit: This means that the audit team felt that controls were designed and operating effectively, so they would rely on the internal controls. As a result, the audit team would increase detection risk and perform fewer substantive testing procedures (which saves time and money). However, since control risk should have been set higher, then that means that more substantive testing should have been performed. Since more performed fewer substantive procedures than they should have, there is a chance that the team won’t identify a misstatement and the audit won’t be effective. Asked by slaythy Auditors are required to obtain a sufficient understanding of each component of a client's internal control. This understanding is used to assess control risk and plan the audit of the client's financial statements. Required: a. For what purposes should an auditor's understanding of the internal control components be used in planning an audit? instructor's answer (pls dontcopy, use as reference) In planning an audit, the auditors' understanding of the internal control components should be used to identify the types of potential misstatements that could occur, to consider the factors affecting the risk of material misstatement, and to influence the design of substantive procedures b. What is required for an audit team to assess control risk below the maximum level? instructor's answer (pls dontcopy, use as reference) An audit team obtains an understanding of the design of relevant internal control activities (policies and procedures) and whether they have been implemented. Assessing control risk below the maximum level further involves identifying specific control activities (policies and procedures) relevant to specific assertions that are likely to prevent or detect material misstatements in those assertions. It also involves performing tests of controls to evaluate the operating design and effectiveness of the client's control activities. c. What should an audit team consider when seeking to reduce the planned assessed level of control risk below the maximum? instructor's answer (pls dontcopy, use as reference) When seeking a reduction in the assessed level of control risk below the maximum, an audit team should consider whether additional audit evidence sufficient to support the reduction is likely to be available, and whether it would be efficient to perform tests of controls to obtain that audit evidence. If controls are tested and found to be effective, the final control risk assessment is low and detection risk can be set higher. As a result, the nature, timing, and extent of substantive procedures would likely be adjusted to reflect the increase in detection risk. d. What are the documentation requirements concerning a client's internal control components and the assessed level of control risk? instructor's answer (pls dontcopy, use as reference) An audit team should document the understanding of a client's internal control system components to plan the audit as well as the basis for the conclusion about the assessed level of control risk. If control risk is assessed at the maximum level, the audit team should document that conclusion and the reasons for it. However, if the assessed level of control risk is below the maximum level, the audit team should document the basis for the conclusion that the effectiveness of the design and operation of internal control activities supports that assessed level. Answer & Explanation Solved by verified expert Answered by hvroque <p>facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lac</p> Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet Unlock full access to Course Hero Explore over 16 million step-by-step answers from our library Subscribe to view answer nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar to ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec faci ongue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor n fficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibu iscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie con sum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec fac Answered by mwalalikims9 <p>a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet.</p> Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet Unlock full access to Course Hero Explore over 16 million step-by-step answers from our library Subscribe to view answer cing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar to ec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fu Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui l , ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus effic Step-by-step explanation ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor at, ul sum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec faci o. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dap , ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficit What audit work is required for an auditor to assess low control risk?Types of evidential matter in assessing control risk at less than maximum include inspection of documentation, observation, reperformance, and inquiries. Evidential matter obtained in prior audits may also be considered in assessing control risk in the current audit.
What is required to assess control risk below the maximum level?Assessing control risk at below the maximum level involves: Identifying specific internal control structure policies and procedures relevant to specific assertions that are likely to prevent or detect ma- terial misstatements in those assertions.
When an audit assess control risk below the maximum level the auditor is required?Assessing control risk below the maximum level most likely would involve: identifying specific control activities relevant to specific assertions. As the acceptable level of detection risk decreases, an auditor may: postpone the planned timing of substantive tests from interim dates to the year-end.
How can auditors assess control risks?5 steps of assessing control risk are;. Consider knowledge acquired front procedures to obtain an understanding.. Identify potential misstatements.. Identify necessary controls.. Perform tests of controls.. Evaluate evidence and make an assessment.. |
What audit work is required for an auditor to assess control risk below maximum?
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