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.

1. High audit evidence for substantial testing - if PDR is smaller than 7%.
2. Medium audit evidence for substantial testing - if PDR is greater than 7% but less than 8%.
3. 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.