CASE 1 You recently passed the CPA board exams and were hired by Plakias and Associates, CPAs as a junior auditor. You have been assigned to audit Warleng Enterprises. Marites, one of the accountants of Warleng Enterprises said to you that she is having some difficulties with basic audit concepts. She needs some advice about the following questions to which you should determine whether it is correct or incorrect. If your answer to the question is incorrect, provide an explanation. Questions 1. Am I right that the risk of material misstatement is composed of the three components of audit risk? 2. Is inherent risk the possibility of material misstatements before considering the client's internal control? 3. In our company, I think our control risk is lower this year than it was last year. Does that mean that there is an increase in the risk of material misstatement? 4. Is it right to say that there would be no detection risk if we didn't have an audit? 5. Auditors simply assess detection risk rather than restrict it, right? 6. Am I right that absent any other changes, an increase in the risk of material misstatements results in an increase in audit risk? 7. Does the term "audit risk" refer to the possibility that the auditors may unknowingly fail to appropriately modify their opinion on the financial statements that are materially or immaterially misstated? 8. Do both inherent risk and control risk exist independently of the audit of financial statements?