1.An auditor is required to obtain sufficient understanding of each component of an entity's internal control system to plan the audit of the entity's financial statements and to assess control risk for the assertions embodied in the account balance, transaction class, and disclosure components of the financial statements.

Required:[2.5 Pts each]

a)Define internal control.

b)For what purpose should an auditor's understanding of the internal control components be used in planning an audit?

c)Why may an auditor set control risk at the maximum level for one or more assertions embodied in an account balance?

d)What are an auditor's documentation requirements concerning an entity's internal control system and the assessed level of control risk?

1.There is no problem if someone says "audit risk and materiality significantly affects auditor's evidence decision as both concepts should be considered by the auditor in planning the nature, timing and extent, of audit procedures and evaluating the results." Based on this introductory statement answer the following questions.

a.Why the knowledge of audit risk is so important for auditors?[4 Pts]

b.Discuss the audit risk model in detail. In your discussion:

i.You should include definition of each of the components. [3 Pts]

Give specific statement as to whether each component is subject to the control of the auditor.

1.In a financial statement audit, an independent auditor must judge the validity of audit evidence obtained.[15 Pts]

Required: Assume you have assessed a low level of control risk.

a.In the course of an audit, the auditor asks many questions of client officers and employees.

i.Describe the factors an auditor should consider in evaluating oral evidence provide by officers and employees.

ii.Discuss the validity and limitations of oral evidence