1. Identify a company where the auditor would determine the acceptable audit risk would be relatively higher and another company where the acceptable audit risk would be relatively lower. Note: The companies you identify do not have to have an actual audit performed. You can think of this as "if an audit were needed..." question. Discuss 3 reasons why an auditor would set the acceptable audit risk for each of the companies you chose as relatively higher versus lower.

	Relatively higher acceptable audit risk	Relatively lower acceptable audit risk
Co. Name
Reason 1
Reason 2
Reason 3

1. Choose one of the companies you selected above. Considering the nature of the company's business, identify an account that would have higher inherent risk and another account that would have lower inherent risk. Explain why the account you identified has a higher or lower inherent risk. Since the company might not have an audit we are aware of, you can make an assumption of what accounts are on the balance sheet and income statement if needed.

Name of Company:

Nature of business (very brief description):

	Account Name	Rationale for level of inherent risk
Account with Lower inherent risk
Account with Higher inherent risk

1. Using the lower/higher inherent risk accounts identified above, complete the table below. Consider the relationship between the risk of the account and how the auditor manages detection risk.

Accounts identified above	Inherent risk	What would be the relative level of detective risk for this account (higher or lower)?	Should the auditor obtain more or less relevant audit evidence?