This risk may be reduced to an acceptable level through the risk-based approach to auditing:identifying and assessing risks of material misstatement at the financial statement and assertion levels (ISA 315);designing and performing audit procedures to obtain sufficient appropriate audit evidence to draw reasonable conclusions on which to base the audit opinion (ISA 330).

According to PSA 400 - Risk Assessments and Internal Control, audit risk meansSelect one:a.The risk that an auditor's substantive procedures will not detect a misstatement that exists in an account balance or class of transactions that could be material, individually or when aggregated with misstatements in other balances or classes.b.The risk that the auditor gives an inappropriate audit opinion when the financial statements are materially misstated.c.The risk that a misstatement, that could occur in an account balance or class of transactions and that could be material, individually or when aggregated with misstatements in other balances or classes, will not be prevented or detected and corrected on a timely basis by the accounting and internal control systems.d.The susceptibility of an account balance or class of transactions to misstatement that could be material, individually or when aggregated with misstatements in other balances or classes, assuming that there were no related internal controls.Clear my choice

Risks of material misstatement at the financial statement level refer to risks that relate to the inherent limitation of audit of financial statements.Select one:TrueFalse

ABC Co. has significant information that is transmitted, processed, maintained, and accessed electronically. The auditor has concluded that it is not possible to reduce detection risk to an acceptable level by performing only substantive tests for a number of financial statement assertions. The auditor's alternative strategy is toSelect one:a.Require management to change its information system to provide appropriate evidence.b.Perform tests of controls to gather evidential matter to use in assessing control risk related to those assertions.c.Focus audit tests on other assertions for which substantive tests prove to be effective.d.Increase the acceptable audit risk.

An auditor must understand audit risk and its components when planning a financial report audit. The firm of Thomas & Fine evaluates the risk of material misstatement by disaggregating it into its three components: inherent risk, control risk and detection risk.RequiredFor each situation in the table below, select the component of audit risk that is most directly illustrated. The components of audit risk may be used once, more than once, or not at all. SITUATIONCOMPONENT OF AUDIT RISK(a) Segregation of duties is inadequate. (b) Confirmation of receivables by an auditor fails to detect a material misstatement. (c) Cash payments have occurred without proper approval. (d) A client, Expo Ltd, has a large cash balance. (e) A necessary substantive audit procedure has been omitted. (f) Technological innovations within the industry have caused a major product to become obsolete. (g) A client, Rocket Ltd, has insufficient working capital to continue its operations.

A properly planned and performed audit may fail to detect a material misstatement resulting from fraud because: A. an audit is planned and performed to provide reasonable assurance of detecting material misstatements caused by errors but not by fraud B. the auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial report taken as a whole. C. the factors considered in assessing control risk indicated an increased risk of error but only a low risk of fraud in the financial report. D. audit procedures that are effective for detecting an error may be ineffective for fraud that is concealed through collusion