When Discussing Planned Detection Risk (PDR)and the Audit Risk Model

question 70

Multiple Choice

When discussing planned detection risk (PDR) and the audit risk model, which of the following statements is NOT true?

• A) PDR is a measure of the risk that the auditor will not detect a misstatement in an assertion that could be material.
• B) When PDR is changed from low to medium, the required accumulation of evidence would be increased.
• C) PDR determines the amount of evidence the auditor plans to accumulate, inversely with the size of planned detection risk.
• D) PDR is dependent on the other three factors in the model; i.e., it will change only if another changes.

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Definitions:

Rights Offer

A financial offering in which shareholders are given the right to purchase additional shares directly from the company at a discount before the new shares are offered to the public.

Existing Shareholders

Individuals or entities that currently own shares in a company and have an interest in its performance.

Firm Commitment

A commitment by an underwriter to buy all the unsold shares in an issue and sell them to the public, taking on the full risk of the sale.

Firm Commitment Underwriting

An agreement in which an underwriter commits to buying all the securities offered by the issuer and selling them to investors, taking on the full risk of selling the securities.