Question 1

What are the three components of the audit risk model?

Accepted Answer

Inherent risk, control risk, and detection risk. Audit risk equals inherent risk multiplied by control risk multiplied by detection risk.

Question 2

If an auditor assesses control risk as HIGH, what must happen to detection risk to hold audit risk constant?

Accepted Answer

Detection risk must be set LOWER, requiring the auditor to perform more extensive substantive procedures to compensate.

Question 3

What is the definition of 'inherent risk' in auditing?

Accepted Answer

Inherent risk is the susceptibility of an assertion to a material misstatement, assuming there are no related internal controls.

Question 4

What distinguishes a 'significant risk' from other identified risks during an audit?

Accepted Answer

A significant risk is an identified and assessed risk of material misstatement that, in the auditor's judgment, requires special audit consideration, often involving fraud or complex transactions.

Question 5

What is 'materiality' as used in audit planning, and who sets it?

Accepted Answer

Materiality is the magnitude of an omission or misstatement that could influence the economic decisions of users; the auditor establishes it based on professional judgment during planning.

Audit & Attestation – CPA Exam Flashcards

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