1. Mark Hopper is planning the audit of the investments account for audit client Garden Supply Co. (GSC). GSC invests excess cash at the end of the summer sales season through an investment manager who invests in equity and debt securities for GSC's account. Hopper has assessed the following risks as low, medium, or high for the relevant balance-related audit objectives in the investment account. (Click the icon to view the Mark's risk assessment for the investment account.) Read the requirements Requirement a. Describe each of the four identified risks in the columns of the table given. Match each identified risk with its definition Definition Type of risk A measure of the auditor's assessment of the risk that a material misstatement could occur in an assertion and not be prevented or detected and corrected by the client's internal controls. This risk is related to the effectiveness of a client's internal controls. A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unmodified opinion has been issued. This is the risk that the auditor will give an incorrect audit opinion. (2) A measure of the risk that audit evidence for an audit objective will fail to detect misstatements exceeding performance materiality, should such misstatements exist. In audit planning, this risk is determined by using the other three factors in the risk model. (3) A measure of the auditor's assessment of the susceptibility of an assertion to material misstatement before considering the effectiveness of internal control. This risk relates to the auditor's expectation of misstatements in the financial statements, ignoring internal control. Requirement b. Fill in the blank for planned detection risk for each balance-related audit objective using the terms low, medium, or high. Risk of Material Misstatements Balance-Related Audit Acceptable Planned Objectives Audit Risk Inherent Risk Control Risk Detection Risk Existence Low Medium Medium (5) Completeness Medium Low Medium (6) Accuracy Medium Medium Medium (7) Cutoff Medium Medium Low (8) Detail tie-in Medium Medium Low (9) Realizable value Low High Medium (10) Classification Medium LOW Low (11) Rights and obligations Medium Medium Low Presentation Medium Low Medium (13) Requirement c. Which audit objectives require the greatest amount of evidence and which require the least? (12) balance-related audit objectives in the investment account. (Click the icon to view the Mark's risk assessment for the investment account.) Read the requirements? Requirement a. Describe each of the four identified risks in the columns of the table given. Match each identified risk with its definition Definition Type of risk A measure of the auditor's assessment of the risk that a material misstatement could occur in an assertion and not be prevented or detected and corrected by the client's internal controls. This risk is related to the effectiveness of a client's internal controls. (1) A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unmodified opinion has been issued. This is the risk that the auditor will give an incorrect audit opinion. (2) A measure of the risk that audit evidence for an audit objective will fail to detect misstatements exceeding performance materiality should such misstatements exist. In audit planning, this risk is determined by using the other three factors in the risk model. (3) A measure of the auditor's assessment of the susceptibility of an assertion to material misstatement before considering the effectiveness of internal control. This risk relates to the auditor's expectation of misstatements in the financial statements, ignoring internal control. (4) Requirement b. Fill in the blank for planned detection risk for each balance-related audit objective using the terms low. medium, or high Risk of Material Misstatements Balance-Related Audit Acceptable Planned Objectives Audit Risk Inherent Risk Control Risk Detection Risk Existence Low Medium Medium (5) Completeness Medium Low Medium (6) Accuracy Medium Medium Medium (7) Cutoff Medium Medium (8) Detail tie-in Medium Medium Low (9) Realizable value Low High Medium (10) Classification Medium Low Low Rights and obligations Medium Medium Low (12) Presentation Medium Low Medium (13) Requirement c. Which audit objectives require the greatest amount of evidence and which require the least? Low The (14) audit objective requires the greatest amount of evidence in order to reduce detection risk to a (15) level. The (16) audit objective requires the least amount of evidence as planned detection risk is at a (17) level
