ICAEW ARF · Chapter 3 · Question 2 of 13
Audit risk is a function of inherent risk, control risk and detection risk. Which of these can the auditor directly influence?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Detection risk
Explanation
Inherent risk and control risk are risks of material misstatement that exist within the entity, independently of the audit; the auditor assesses them but cannot change them. Detection risk is the risk that the auditor's procedures fail to detect a material misstatement. The auditor manages it through the nature, timing and extent of substantive procedures.
More Planning, materiality and risk assessment MCQs
- Q4An audit firm sets overall materiality at 5% of profit before tax. A client's draft profit before tax is £840,000. What is overall…
- Q5Overall materiality for an audit is £60,000. The firm sets performance materiality at 75% of overall materiality and treats misstatements…
- Q6Which of the following misstatements is most likely to be material by its nature, even though the amount is small?
- Q7Which of the following is most likely to indicate a high inherent risk?
- Q8Which of the following describes control risk?