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For each of the following cases: (i) identify the type of risk (either inherent or control risk) and discuss briefly

its effects on its impacts on material misstatement; and (ii) explain the appropriate audit response (i.e., increase

or decrease in detection risk level and materiality level).

a) The entitys management does not intend to remedy some deficiencies in internal controls identified by

the external auditor as they consider them to be minor.

(3 marks)

b) The entitys policy is to employ personnel in the finance department either with or working towards a

recognized accountancy qualification.

(3 marks)

c) The company has set up an internal audit department.

(3 marks)

d) The computer system crashed part way through the year but the IT department claim that no records

were lost.