L3 Notes_Part_12 - relationships among the foregoing...

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Applying the Audit Risk Model c. Assume the auditor is doing the fifth-year municipal audit of Redwood City, Missouri, and concludes that audit risk can be set high, and inherent and control risks should be set low. i. What circumstances would result in these conclusions? ii. For the audit of repairs and maintenance, inherent and control risk are set at 20 percent each. Audit risk is 5 percent. Calculate planned detection risk. iii. How much evidence should be accumulated in this situation?
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Audit Risk Model SITUATION RISK 1 2 3 4 5 6 Audit risk Inherent risk Control risk Detection risk Planned evidence High Low Low - - High High Low - - Low High High - - Low Low High - - High Medium Medium - - Medium Medium Medium - - 1) Fill in the blanks and 2) Using your knowledge of the
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Unformatted text preview: relationships among the foregoing factors, state the effect on planned evidence (increase or decrease) of changing each of the following four factors, while the other three remain constant. i. A decrease in audit risk. ii. A decrease in control risk. iii. A decrease in inherent risk. iv. An increase in control risk and a decrease in inherent risk and which requires the least? Audit Risk Model AAR/(IR x CR) = PDR Procedures to Obtain an Understanding of Internal Control (UIC) Tests of Controls (ToC) + Substantive Tests of Transactions (SToT) Analytical Procedures (ARP) Tests of Details of Balances (DTB) Sufficient Competent Evidence per GAAS + + + = Types of Audit Tests:...
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