L3 Notes_Part_11 - audit of Redwood City, Missouri, and...

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Applying the Audit Risk Model a. Assume the auditor is doing a first-year municipal audit of Redwood City, Missouri, and concludes that the internal control system is not likely to be effective. i. Explain why the auditor is likely to set both inherent and control risks at 100 percent for most segments. ii. Assuming i., explain the relationship of audit risk to planned detection risk. iii. Assuming i., explain the effect of planned detection risk on evidence accumulation compared with its effect if planned detection risk were larger. From Auditing by Arens, Beasley, Elders
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Applying the Audit Risk Model b. Assume the auditor is doing the third-year municipal
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Unformatted text preview: audit of Redwood City, Missouri, and concludes that internal controls are effective and inherent risk is low. i. Explain why the auditor is likely to set inherent and control risks for material segments at a higher level than, say, 40 percent, even when the two risks are low ii. For the audit of fixed asset accounts, assume inherent and control risks of 50 percent each, and an acceptable audit risk of 5 percent. Calculate planned detection risk. iii. For ii., explain the effect of planned detection risk on evidence accumulation compared with its effect if planned detection risk were smaller....
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L3 Notes_Part_11 - audit of Redwood City, Missouri, and...

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