Step 2 of the Planning Process Is the Risk Assessment

question 89

Multiple Choice

Step 2 of the planning process is the risk assessment phase.At this stage of the planning process the objective of the auditor is to identify and assess the risk of material misstatement.The auditor does this by

• A)gaining an understanding of the company and its management,including the company's financial controls
• B)gaining an understanding of the company's industry,including the company's competition
• C)developing an audit strategy to respond to the risk of material misstatement
• D)performing risk assessment procedures to assess the risk of material misstatement at the financial statement and assertion level

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Definitions:

Contagion Theory

One of the earliest theories of collective action; suggests that individuals who join a crowd can become “infected” by a mob mentality and lose the ability to reason.

Collective Behavior

Behavior that follows from the formation of a group or crowd of people who take action together toward a shared goal.

Large Numbers

Numerical values that are significantly larger than those ordinarily encountered in daily life or in specific contexts, often requiring special methods for understanding or computation.

Social Revolutions

Significant, rapid, and often violent changes in society's structures, particularly those related to political power and class structures.