When an Auditor Increases the Assessed Level of Control Risk

question 779

Multiple Choice

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

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

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Definitions:

Banking System Reserves

The portion of deposits that banks must hold in reserve and not lend out, often held at the central bank to ensure liquidity.

Money Supply

The sum of financial resources, comprising cash and deposits in banks, accessible in an economy at a particular moment.

Price Level(P)

A measure of the average prices of goods and services in an economy, often used to compare the overall cost of living or inflation rate over time.

Money Demanded

The total amount of money that households and businesses want to hold at a given time, influenced by interest rates, income, and prices.