ASSURANCE PRINCIPLE, PROFESSIONAL ETHICS & GOOD GOVERNANCE

MIDTERM EXAMINATION

NAME: ___________________________________________________

Answer Sheet:
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ASSURANCE PRINCIPLE, PROFESSIONAL ETHICS & GOOD GOVERNANCE
MIDTERM EXAMINATION

QUESTIONS:
Below are the auditor’s planned audit risk and assessment of inherent risk and control risk for five situations.

Situation Planned Audit Risk (%) Assessed Inherent Risk (%) Assessed Control Risk (%)
1 10 30 40
2 10 10 80
3 40 40 30
4 50 60 100
5 50 70 100

Required:

a. Determine the detection risk that can be allowed for each situation. (5 pts)

Situation Detection Risk

(expressed in percentage)
1 1.
2 2.
3 3.
4 4.
5 5.

b. Determine the nature timing and extent of audit procedures for each situation. (5 pts)

Nature: More persuasive test or less persuasive test

Timing: interim or year-end
Extent: more extensive or less extensive

Situation Nature, timing and extent of audit procedures

1 6.
2 7.
3 8.
4 9.
5 10.

c. Rank the five situations, based on the amount of audit evidence that will be needed. You may assume that all
other factors may affect audit evidence accumulation are the same. (1 pt)

d. Give the Audit Risk Model (1 pt)

e. Give the three component risks of Audit Risk (3 pts, 1 pt for each identified risk)

REFERENCES:
1. Lesson 9 -Basic concepts underlying an FS Audit
2. Lesson 11 - Audit Planning - Risk and Materiality, Risk Assessment and Risk Response