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A firm uses the audit risk model, AR-RMMXDR to plan audit programs, as described below. This often involves determining required DR after specifying M and AR, and then assessing the operaaating effectiveness of controls in terms of RMM, or DR-RMM/AR THE FIRM'S POLICIES Audit Risk: The firm's AR ranges, for any materiality amount, are: VERY LOW 1% to 50% is not permissible under the firm's guidelines. 1 Suppose the auditor specifies only the categories for AR and RMM, not numerical values. Briefly explain the reason why the firm's software planning tool would set AR to the low end of the range for each category and RMM to the high end of the range for each category. 2 A. The auditor sets AR to LOW, and RMM, the operating effectiveness, is found to be MODERATE. Calculate planned DR in accordance with the planning guideline. B. The auditor sets AR to LOW, and RMM, the operating effectiveness, is found to be HIGH. Calculate planned DR in accordance with the planning guideline C. The auditor sets AR to MODERATE, and RMM, the operating effectiveness, is found to be LOW. Calculate planned DR in accordance with the planning guideline. 3 Assume that scope of the examination (nature, extent and timing of procedures) remains constant. A. What effect does increasing the materiality amount have on DR? B. What effect does increasing the materiality amount (making it a larger amount] have on AR? 4 Assume that the auditor had determined the scope based specifying M, AR, RMM, and DR. A. The engagement partner later decides that M should be a larger amount, but RMM, AR, and DR must remain unchanged, what is the effect on the scope of the examination? Explain briefly in words. B. If scope is enhanced, but AR is unchanged, what is the possible effect on the amount of misstatement that could be detected at that fixed level of AR? (This is the same as asking what is the effect on M?]