Reference no: EM132485842

Question I. For each case, calculate planned [desired] detection risk:

               Case 1           Case 2          Case 3       Case 4        Case 5

Audit risk  1%               1%                   5%        1%          1%

Inherent risk 40%           60%                   40%      20%         20%

Control risk    60%          40%                 60%           20%         40%

Question II. Define the terms: 1. Audit risk, 2. Control risk, and 3. Inherent risk. State whether Detection Risk varies directly or indirectly with each risk.

Question III. Contrast Case 4 with Case 5.

A. Would the auditor have to do more or less substantive testing in case 5 compared to case 4?

B. Explain, by referring to the audit risk model.

C. Now explain, without referring to the audit risk model.