Quiz #10

I. Multiple choice

1. C
2. A
3. D
4. C
5. D
6. D
7. A
8. C
9. B
10. A

II. Essay II

Audit risk is composed of three types of risk. These are inherent risk, control risk, and
detection risk. Inherent risk is the risk that it is innate within the given account itself
without applying internal controls. Control risk is the risk that there will happen after the
implementation of internal controls. Detection risk is the risk that the auditor can possibly
control by conducting test of controls and substantive procedures.

If the assessed level of inherent and control risk is high, the detection risk must be
lowered in order to maintain the reasonable of audit risk. On the other hand, if both the
inherent and control is low, the detection risk can possibly increase its value. So, when
the assessed level of risk is high, the auditor should conduct more extensive audit
procedures and usually done at period-end in order to have a reasonable basis in
expressing the opinion on the credibility of the financial statements.