Which Is a Primary Limitation of the Audit Risk Model

question 24

Multiple Choice

Which is a primary limitation of the audit risk model?

• A)The audit risk model does not adequately consider external forces on the client organization.
• B)Components of audit risk are treated as independent variables even though many interdependencies exist between them.
• C)The audit technology achieves approximate precision outside of a mathematical model.
• D)Control risk must be adjusted at the hands of the auditor,not by an arbitrary estimation.

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Definitions:

Controlling Interest

Ownership of a portion of a company that is large enough to influence or control its operations and decisions, typically over 50% of the voting rights.

Equity Contribution

Capital provided by owners or shareholders to a firm in exchange for an ownership interest or stock.

Initial Investment

The initial amount of capital used to start a business or investment.

Commercial Substance

A scenario where the future cash flows of an asset or group of assets are expected to change significantly due to a transaction.