Below Are Four Situations That Involve the Audit Risk Model

question 36

Short Answer

Below are four situations that involve the audit risk model as it is used for planning audit evidence requirements in the audit of inventory. For each situation, calculate planned detection risk.
SITUATION
$$\begin{array} { | l | l | l | l | l | } \hline & 1 & 2 & 3 & 4 \\\hline \text { Audit risk } & 1 \% & 10 \% & 10 \% & 5 \% \\\hline \text { Inherent risk } & 100 \% & 100 \% & 50 \% & 20 \% \\\hline \text { Control risk } & 100 \% & 100 \% & 40 \% & 30 \% \\\hline \text { Detection risk } & & & & \\\hline\end{array}$$

Grasp the concept, purpose, and preparation order of the Trial Balance.

Identify different types of adjusting entries, such as for prepaid items, accrued revenues, and accrued expenses.

Comprehend the relationship between adjusting entries and related account types.

Learn the procedural steps in the accounting cycle, including the adjustment process.

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Definitions:

Positive Reinforcement

The addition of a rewarding stimulus following a desired behavior, encouraging its future occurrence.

Negative Reinforcement

A process in behavioral psychology where the removal of an undesirable outcome or stimulus increases the likelihood of a behavior being repeated.

Punishment

The imposition of a penalty as retribution for an offense, with the aim of correcting behavior or serving as a deterrent.

Scapegoat

A person or group unfairly blamed for problems or issues, often as a means of deflecting responsibility or criticism.