Following are six situations that involve the audit risk model as it is used for...
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Accounting
Following are six situations that involve the audit risk model as it is used for planning audit evidence requirements in the audit of inventory.
Situation
Risk
1
2
3
4
5
6
Acceptable audit risk
Medium
Low
High
High
High
Low
Inherent risk
Medium
Low
Low
High
Medium
High
Control risk
Medium
High
Low
Low
Medium
High
Planned detection risk
Planned evidence
Explain what low, medium, and high mean for each of the four risks and planned evidence.
Fill in the blanks for planned detection risk and planned evidence using the terms low, medium, or high.
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:
A decrease in acceptable audit risk
A decrease in control risk
A decrease in planned detection risk
A decrease in inherent risk
A decrease in inherent risk and an increase in control risk of the same amount
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