If an auditor concludes that internal controls are likely to be effective, the preliminary assessment of control risk can be reduced, leading to which of the following impacts on the acceptable risk of incorrect acceptance? The acceptable risk of incorrect acceptance will not be impacted. The acceptable risk of incorrect acceptance will be reduced. The acceptable risk of incorrect acceptance will be increased. The acceptable risk of incorrect acceptance will be eliminated.
Ans) "Acceptable Risk of Incorrect Acceptance" (ARIA), simply refers to the initiated risk that an auditor is willing to take for accepting a balance as legit and accurate when the true misstatement in the balance exceeds the tolerable misstatement. The primary factor affecting the auditor's decision about ARIA is 'control risk' in the audit risk module.
When the auditor ensures that internal controls are effective and control risk can be reduced, this will surely have a positive impact on 'ARIA'. Reducing the control risk will permit the auditor to increase ARIA, which in turn reduces the required sample size for auditing.
Beside control risk, 'ARIA' is also directly affected by acceptable audit risk and inversely by inherent risk and other substantial tests which are already performed on the account balance.
If an auditor concludes that internal controls are likely to be effective, the preliminary assessment of...
After assessing internal controls are being effective in the sales and collection cycle, the auditor can assume that internal controls will be effective at each of the client’s other transaction cycles. True or False
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After completing the tests of controls for inventories and purchases for DTB Inc. for the year ended You have been assigned to work on the accounts receivable section of the 2019 audit of XYZ. You have completed your study of the internal controls (attribute sampling) over sales and receivables and have decided that the key control over the completeness of sales is that shipping orders must be matched to sales invoices. Your first step is to determine the correct sample...