Acceptable risk of assessing control risk too low or too high is directly related to
|
Show
The risk of assessing control risk too low is the risk that the assessed level of control risk, based on the sample results are lower than the actual risk based on the actual operating effectiveness of those controls. This will result in under-testing substantive procedures, and over-reliance on internal controls. This will affect the effectiveness of the audit detecting existing material misstatements. Back To All Questions You might also be interested in... What is the risk of assessing control risk to high?The risk that the assessed level of control risk, based on the sample results, are higher than the actual risk based on the actual operating effectiveness of those controls. This will result in over-testing when it comes to testing substantive procedures. This will affect the efficiency of audit procedures. What is control risk?Control risk is the risk that a material misstatement that could occur in a relevant assertion will not be prevented or detected on a timely basis by the company’s internal controls. acceptable risk of assessing control risk toolow — ARACR or ARO•tolerable deviation rate — TDR•expected population deviation rate —EPDR•population size We have textbook solutions for you!The document you are viewing contains questions related to this textbook. Basic Marketing Research Brown/Churchill Expert Verified 3.Audit sampling for substantive testing•Audit risk, sampling risk, and materiality ,insubstantive testing:•detection risk : the risk that a material misstatementwill not be detected by either analysis or tests ofdetails:DR = APR* RIA.•Alpha risk: therisk of incorrect rejection (RIR)Beta risk: therisk of incorrect acceptance (RIA)•Tolerable monetary misstatement Sampling procedures for substantive testing1. identifying individually significant items for 100%verification;2. defining the population from which the samplecan be drawn;3. verifying the completeness of the population;4. defining the sample unit;5. considering stratifying the population to increaseaudit efficiency (discussed later in this topic);6. determining the sample size; 7. selecting the sample;8. performing the substantive audit procedures;9. evaluating the results of the evidence obtained;10.projecting the sample results to the population;11.considering sampling risk;12.reaching a conclusion about the population. Recommended textbook solutionsFinancial Accounting4th EditionDon Herrmann, J. David Spiceland, Wayne Thomas 1,097 solutions Fundamentals of Financial Management, Concise Edition10th EditionEugene F. Brigham, Joel Houston 777 solutions
Accounting: What the Numbers Mean9th EditionDaniel F Viele, David H Marshall, Wayne W McManus 338 solutions
Century 21 Accounting: General Journal11th EditionClaudia Bienias Gilbertson, Debra Gentene, Mark W Lehman 1,012 solutions What is the acceptable risk of assessing control risk too low?The risk of assessing control risk too low and the risk of incorrect acceptance relate to the effectiveness of the audit because such errors can result in the auditor failing to detect a material misstatement in the financial statements.
What is the risk of assessing control risk too high?The risk of assessing control risk too high is the risk that the assessed level of control risk based on the sample is greater than the true operating effectiveness of the control.
What effect does an increase in the acceptable risk of assessing control risk too low have on sample size?An increase in allowable risk of assessing control risk too low, an increase in the tolerable rate and decrease in expected rate each has the effect of reducing required sample size.
What is the assessed level of control risk?Assessing control risk is the process of evaluating the effectiveness of an entity's internal control in preventing or detecting material misstatements in the financial statements.
|
