9-35 (oBJECTIVE 9-5) Below are ten independent risk factors: 1. The degree to wh

Question

9-35 (oBJECTIVE 9-5) Below are ten independent risk factors: 1. The degree to which external users rely on the statements 2. The client fails to detect employee theft of inventory from the warehouse because there are no restrictions on warchouse access and the client does not reconcile Inven tory on hand to recorded amounts on a timely basis. 3. The likelihood that a dient will have financial diffculies after the audt report is issued. 4. Judgment Required to Correctly Record Account Balances and Transactions. 5. The assigned staff on the audit engagement lacks the necessary skills to identify actual errors in an account balance when examining audit evidence accumulated. 6. The auditor's evaluation of management's integrity 7. The individual items making up the total population also affect the auditor's expecta- tion of material misstatement 8. Fire losses, major property acquisitions, purchase of complex investments, and restructuring changes resulting from discontinued operations. 9. The audit program onits several necessary audit procedures. 10. The client fails to reconcile bank accounts to recorded cash balances. ldentify which of the following audit risk model components relates most directly to each Required of the ten risk factors: . Acceptable audit risk . Control risk . Inherent risk . Planned detection risk

Explanation / Answer

1 The degree to which external users rely on the statements Acceptable audit risk 2 The client fails to detect employee theft of inventory from the warehouse because there Control risk are no restrictions on warehouse access and the client does not reconcile inventory on hand to recorded amounts on a timely basis. 3 The likelihood that a client will have financial difficulties after the audit report is issued Acceptable audit risk 4 Judgment required to correctly record account balances and transactions Inherent Risk 5 The assigned staff on the audit engagement lack the necessary skills to identify Planned detection risk errors in an account balance when examining audit evidence accumulated. 6 The auditor's evaluation of management's integrity. Acceptable audit risk 7 The individual items making up the total population also affect the auditor's expectation Inherent Risk of material misstatement 8 Fire losses, major property, acquisitions, purchase of complex investments, and restructuring Inherent Risk changes resulting from discontinued operations 9 The audit plan omits several necessary audit procedures. Planned detection risk 10 The client fails to reconcile bank accounts to recorded cash balances. Control risk

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