Following are six situations that involve the audit risk model as it is used for planning audit evidence requirements in the audit of inventory.
Risk |
|
| Situation |
|
| |
1 | 2 | 3 | 4 | 5 | 6 | |
Acceptable audit risk | High | High | Low | Low | High | Medium |
Inherent risk | Low | High | High | Low | Medium | Medium |
Control risk | Low | Low | High | High | Medium | Medium |
Planned detection risk | – | – | – | – | – | – |
Planned evidence | – | – | – | – | – | – |
Required
a. Explain what low, medium, and high mean for each of the four risks and planned evidence.
b. Fill in the blanks for planned detection risk and planned evidence using the terms low, medium, or high.
c. Using your knowledge of the relationships among the foregoing factors, state the effect on planned evidence (increase or decrease) of changing each of the following five factors, while the other three remain constant:
(1) A decrease in acceptable audit risk
(2) A decrease in control risk
(3) A decrease in planned detection risk
(4) A decrease in inherent risk
(5) A decrease in inherent risk and an increase in control risk of the same amount
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