Chapter 3 #s 47,48 Solutions

Chapter 3 #s 47,48 Solutions - 3.47 Audit Risk Model...

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3.47 Audit Risk Model Evaluation of risk assessment conclusions with AR = IR x CR x DR as a model. 1. Paul is not justified in acting upon a belief that IR = 0. He may have seen no adjustments proposed because (1) none were material or (2) Tordik’s control system has functioned well in the past and prevented/detected/corrected material errors. If IR = 0, then AR = 0 and no further audit work need be done. Conservative auditing standards and practice do not permit this level of (non)work based on this little evidence and knowledge. 2. Hill is not justified in acting upon a belief that CR = 0. She may well know that Edward’s internal accounting control is exceptionally good, but (1) her review did not cover the last month of Edward’s fiscal year and (2) control procedures are always subject to lapses. If CR = 0, then AR = 0 and no further audit work need be done. Conservative audit practice does not permit assessment of control risk at 0% to the exclusion of other audit procedures. 1.
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This note was uploaded on 04/01/2011 for the course ACCT 413 taught by Professor Kickham during the Spring '11 term at Saginaw Valley.

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Chapter 3 #s 47,48 Solutions - 3.47 Audit Risk Model...

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