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Unformatted text preview: 9-22 a. (4) b.(4) c.(4) 9-23 a.(1) b.(1) c.(1) 9-24 a.(2) b.(3) c.(1) 9-31a.Acceptable audit risk A measure of how willing the auditor is to accept that the
financial statements may be materially misstated after the audit is completed and an
unqualified opinion has been issued. This is the risk that the auditor will give an
incorrect audit opinion.
Inherent risk A measure of the auditor's assessment of the likelihood that there are
material misstatements in a segment before considering the effectiveness of internal
control. This risk relates to the auditor's expectation of misstatements in the financial
statements, ignoring internal control.
Control risk A measure of the auditor's assessment of the likelihood that
misstatements exceeding a tolerable amount in a segment will not be prevented or
detected by the client's internal controls. This risk is related to the effectiveness of a
client's internal controls.
Planned detection risk A measure of the risk that audit evidence for a segment will
fail to detect misstatements exceeding a tolerable amount, should such
misstatements exist. In audit planning, this risk is determined by using the other three
factors in the risk model using the formula PDR = AAR / (IR x CR). b.
Acceptable Audit Risk
IR x CR
PDR = AAR / (IR x CR)
Planned Detection Risk .05
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This note was uploaded on 08/12/2011 for the course ACCT 620 taught by Professor Smith during the Spring '11 term at Alabama A&M University.
- Spring '11