The following questions concern the audit risk model or audit approach. Choose the best answer.

a. Medium Financial Corporation has a complex hardware configuration. There is a central computer, as well as branch computers and automated teller machines. An Internet banking interface is being considered. Several thousand transactions are processed each day. Given good internal controls, the likely audit approach would be

(1) a test of details approach only, due to the uniqueness of the system.

(2) controls testing only, due to the high volume of transactions processed.

(3) a combined audit approach, with reliance on special¬ ist assistance.

(4) primary reliance on a service auditor's report, due to the outsourced software.

b. Halloween Sales Limited uses custom software written by an outside software house. Contract personnel have been hired in the accounting department to help with the seasonal workload. These people use a common pass¬ word. The most likely audit approach for the audit of accounts receivable

(1) would be combined since a high volume would make substantive testing costs prohibitive.

(2) would be substantive due to potential data integrity problems.

(3) would be oriented heavily towards control testing due to the high level of automation.

(4) cannot be determined due to insufficient information.

c. At ABC Company, programmers work directly with user managers to identify the maintenance requirements of particular application systems. The programmer documents the needed change, tests it, and returns the pro¬ gram to the user for placement into the production system. The program change process has the following effect on the audit risk model components:

(1) The inherent risk is decreased.

(2) The control risk is increased.

(3) The detection risk is increased.

(4) The detection risk is decreased.