Reference no: EM133064010

Question - It is essential for an auditor to understand audit risk and its components when planning a financial statements audit. The following situations relate to the client, Wings Ltd.

i. Technological innovations within the industry have caused a major product to become obsolete.

ii. Cash is more susceptible to theft than an inventory of cement.

iii. Segregation of duties is inadequate.

iv. Cash payments have occurred without proper approval.

v. A necessary substantive audit procedure is omitted.

Required -

(a) Audit risk is a function of inherent risk, control risk and detection risk. For each of the above situations (i) to (v), identify the component of the audit risk that is mostly directly affected.

(b) Identify and explain FIVE (5) assertions on account balances (Profit and Loss items).

(c) Explain 'sufficient' and 'appropriate' audit evidence.