QUES'HON 3 {15 MARKS] 1. The auditor should consider audit risk and materiality when planning and performing an audit of nancial statements in accordance with approved auditing standards. Materialitv and audit risk should be considered together in determining the nature, timing and extent of auditing procedure. Required: a. Explain the factors aecting determination of materiality. (5 marks) b. Describe the component of inherent risk, control risk and detection risk and their interrelation. (5 marks) B. When planning a nancial statement audit, an auditor must understand audit risk and its component. Required: For each illustration, select the component of audit risk that is most directly illustrated. The component of audit risk either inherent , control risk or detection n'sk. Illustration Component of audit risk 1. A client fails to discover employee fraud on a timely basis because bank accounts are not reconciled monthly. Technological developments make a major product obsolete Disbursement have occurred without proper approval . A necessary substantive audit procedure is omitted Account receivable are susceptible to material misstatement, assuming there are nor elated intemal control