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
$$\begin{array} { | l | l | l | l | l | } \hline & 1 & 2 & 3 & 4 \\\hline \text { Audit risk } & 1 \% & 10 \% & 10 \% & 5 \% \\\hline \text { Inherent risk } & 100 \% & 100 \% & 50 \% & 20 \% \\\hline \text { Control risk } & 100 \% & 100 \% & 40 \% & 30 \% \\\hline \text { Detection risk } & & & & \\\hline\end{array}$$

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Definitions:

Regression Analysis

A statistical method used to examine the relationship between a dependent variable and one or more independent variables.

Target Variable

In statistical modeling and machine learning, the variable that is the object of prediction or explanation.

Judgment-Based Forecasting

This method of forecasting relies on expert opinions and intuition rather than statistical data or mathematical models.