ACCY 131 PI-2a Solutions

ACCY 131 PI-2a Solutions - IndividualProblemSet#2(PI2)

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Individual Problem Set #2 (PI 2) Review Questions (Chapter 5 & 6 – 10 points total; 2 points each) 5 2 Identify and describe the two components of risk of material misstatement. Provide an example that may signify higher risk of material misstatement for each of the components. ANS: The two components of the risk of material misstatement include inherent risk and control risk. Inherent risk is the risk of material misstatement of an assertion about an account, class of transaction, or disclosure without considering internal control, and control risk is the risk that internal control will fail to prevent or detect and correct the material misstatement. 5 7 “The best means of verification of cash, inventory, office equipment, and nearly all other assets is a physical count of the units; only a physical count gives the auditors complete assurance as to the accuracy of the amounts listed on the balance sheet.” Evaluate this statement . ANS: The quoted statement is misleading; the counting of office equipment and similar assets does not establish the propriety of the dollar amounts shown on the balance sheet. Neither does a physical count of assets establish ownership. Establishing the physical existence of an asset is
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ACCY 131 PI-2a Solutions - IndividualProblemSet#2(PI2)

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