B. Audit is performed to provide evidence of a reliability of the information obtained from those which are entrusted by the management, to all interested parties. The effectiveness and efficiency of performing financial statements audit is largely depends on the understanding and implementation of the three fundamental auditing concepts: the concept of materiality - relevance, the concept of audit risk and the concept of audit evidence. Audit process is constantly followed by a risk - the risk that the auditor can make mistakes in expressing his/her opinion on the accuracy and validity of the data presented in the financial statements. Audit risk may occur where auditor provides a positive opinion on the audited financial statements (by mistake or on purpose), even in circumstances where they, in fact, contain material shortcomings.

REQUIRED:

(a) Explain the difference between audit risk and materiality (include in your explanation on how does the audit risk associate with materiality). (2 Marks)

(b) Suggest TWO (2) situations that resulted in low audit risk. (3 Marks)

(c) Based on the following table, identify if there is/are mistake(s) in the column Inherent Risk, Control Risk, Detection Risk and Audit Evidence Required. If there are, please make correction accordingly.

(5 Marks)

Acceptable audit risk High Inherent risk Low Control risk Low Detection risk Low Audit evidence required High Medium Low Medium Low Medium Low High High Low Low