When an Auditor Increases the Assessed Level of Control Risk

question 435

Multiple Choice

When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor most likely would increase the:

• A) Level of detection risk.
• B) Extent of tests of details.
• C) Level of inherent risk.
• D) Extent of tests of controls.

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Definitions:

Risk-Return Trade-Off

The principle that potential return rises with an increase in risk.

Leveraged Buyout Analysis

A financial transaction analysis in which a company is purchased using a significant amount of borrowed money to meet the cost of acquisition.

Divestiture Planning

The process of selling off a business unit, division, or assets of a company as a strategic move to focus on core operations or free up resources.

Lines Of Credit

Flexible loan arrangements with a financial institution which allow borrowers to draw funds up to a specified limit as needed.