a.What is the impact of the following independent factors on the elements of the audit risk model? E.g. increase (I) / decrease (D) / no change (N)

(7 marks)

Item

Factor

Acceptable audit risk

Inherent risk

Control risk

Planned detection risk

1

The auditor discovered several material misstatements in the prior year audit

2

Based on prior year tests, the auditor decides to place more reliance on internal control

3

Assessment by the auditor indicates that the client may have going concern problems

4

The audit client conducts several material transactions with related parties

5

The client has changed from a privately-held company to a publicly-held company

6

This is the second year of auditing this client, and the risk assessments may now be less conservative

7

The client does not conduct regular bank reconciliations