Reference no: EM132860115

1. The PCAOB has been authorized to establish auditing standards to be followed on audits of companies whose stock is publically traded. Only two of the five standard setters are allowed to be CPAs. (I) Writing a sentence, or two, IN FAVOR of the policy of allowing only two members of the Board to be CPAs; (II) Writing a sentence, or two, AGAINST the policy of allowing only two members of the Board to be CPAs;

Two CPAs allowed on the Board:

I. In favor, only two CPAs

II. Against, more than two CPAs

2. Assume that an auditor uses the audit risk model on two different engagements as follows:

Engagement Audit Inherent Control Detection Risk
Risk Risk Risk (as calculated)
I .01 .40 .40 .0625
II .01 .80 .40 to be determined

A. Calculate "detection risk". Compared to engagement I, will the auditor do more or less "audit work" on engagement II?

B. "Tell a story" to explain "part A" in a manner that someone Not familiar with the audit risk model would likely understand. DO NOT refer to the audit risk model directly in your discussion.