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The auditors of Dunbar Electronics want to limit the risk of material misstatement in the valuation of inventories to 2 percent. They believe that there
The auditors of Dunbar Electronics want to limit the risk of material misstatement in the
valuation of inventories to percent. They believe that there exists a percent risk that
a material misstatement could have bypassed the clients internal control and that the
inherent risk of the account is percent. They also believe that the analytical procedures
performed to test the assertion have a percent risk of failing to detect a material
misstatement.
a Briefly discuss what is meant by audit risk, inherent risk, control risk, and the risk that
analytical procedures might fail to detect a material misstatement.
b Calculate the maximum allowable risk of incorrect acceptance for the substantive test of
details.
c What level of detection risk is implicit in this problem?
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