In Practice, Auditors Rarely Assign Numerical Probabilities to Inherent Risk

question 44

Essay

In practice, auditors rarely assign numerical probabilities to inherent risk, control risk, or audit risk. It is more common to assess these risks as high, medium, or low. For each of the four situations below, fill in the blanks for detection risk and the amount of evidence you would plan to gather ("planned evidence") using the terms high, medium, or low.
SITUATION
$$\begin{array} { | l | l | l | l | l | } \hline & 1 & 2 & 3 & 4 \\\hline \text { Audit risk } & \text { Low } & \text { Low } & \text { High } & \text { High } \\\hline \text { Inherent risk } & \text { High } & \text { Low } & \text { Low } & \text { Low } \\\hline \text { Control risk } & \text { High } & \text { Low } & \text { Medium } & \text { Low } \\\hline \text { Detection risk } & & & & \\\hline \begin{array} { l } \text { Planned } \\\text { evidence }\end{array} & & & & \\\hline\end{array}$$

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Definitions:

Coercive Power

The ability to force someone to do something against their will, using threats, punishment, or control.

Reward Power

The ability of an individual or entity to influence others' behavior by controlling the allocation of rewards such as bonuses, promotions, or praise.

Expert Power

The influence and authority a person has as a result of their expertise, skills, or knowledge.

Avenues Of Appeal

Legal or procedural paths available for challenging decisions or seeking redress within judicial or administrative systems.