Question
Q2. Following are 3 situations that involve the audit risk model as it is used for planning audit evidence (sample) requirements in the audit of
Q2. Following are 3 situations that involve the audit risk model as it is used for planning audit evidence (sample) requirements in the audit of the following cycles.
Risk
Payroll and
Personnel Cycle
Low or 3%
Inventory Acquisition and Payment Cycle
High or 5%
Sales and Cash
Receipt Cycle
Medium or 4%
Acceptable Audit
Risk (AAR)
Inherent Risk
Control Risk
Planned Detection
Risk (PDR)
Audit Evidence
Low or 50%
High or 100%
(A%)
Medium or 75% Medium or 75%
(B%)
Medium or 75%
Medium or 75%
(C%)
D-??
E-??
F- ??
Required:
1. Fill in the blanks for planned detection risk (A% to C%, rounded to one decimal) and audit evidence (D to F) using the audit risk model. Further, for D to F, please state it either has a high, medium, or low level of audit evidence gathering which means the following: 6 3 pts = 18 pts.
- High audit evidence for substantial testing - if PDR is smaller than 7%.
- Medium audit evidence for substantial testing - if PDR is greater than 7% but less than 8%.
- Low audit evidence for substantial testing - if PDR is greater than 8%.
2. For the sales cycle, discuss the 3-way match of documents needed to test the sale-specific audit procedure. What type of audit evidence/assertion is this audit procedure? 6 pts.
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