LESSON _3

LESSON _3 - Exercise 3-2: Inherent risk is the situation...

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Exercise 3-2: Inherent risk is the situation that a material misstatement exists in the financial statements without the consideration of the internal control. The control risk is the risk that a material misstatement that could occur in a relevant assertion will not be prevented or detected on a timely basis by the entity’s internal control. The inherent and control risk exist independently of the audit. The auditor has little or no control over these risks. On the other hand, detection risk is the risk that the auditor will not detect a misstatement that exists in a relevant assertion that could be material. The detection risk could be minimized by the auditor. Exercise 3-9: Step 1: Determine a materiality level for the overall financial statements. The auditor needs to establish a materiality level for the financial statements. This materiality is referred as planning materiality. The planning materiality is the maximum amount that the auditor believes the financial statements could be misstated and still not affected the audit decision. Step 2: Determine tolerable misstatement. Tolerable misstatement is the amount of
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LESSON _3 - Exercise 3-2: Inherent risk is the situation...

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