Indicate Whether You Agree or Disagree with the Following Statements

question 69

Essay

Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) Monica Callahan, the in-charge auditor, was explaining to her junior auditors why she was setting inherent risk high. "It is appropriate to set higher inherent risk for this company as our client is in an industry that is very competitive."
b) In selecting an appropriate materiality base, an auditor can choose an item from the balance sheet or income statement.
c) Randy Roberts has mentioned to his staff auditors that audit risk is based on factors that relate to the entity, while materiality is based on the user needs. As a result, materiality and audit risk are two concepts that need to be considered separately when considering material misstatements.
d) Shareep Kaur has determined control risk at a biochem company to be high. She plans to use a combined audit strategy.

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Definitions:

Marginal Analysis

Marginal analysis evaluates the impact of a slight change in production or consumption, used to make decisions about allocating resources most efficiently.

Risk Aversion

The tendency of individuals or entities to prefer outcomes with less uncertainty, avoiding risks in decision-making.

Economic Payoff

The financial return or profit resulting from an investment or action.

Bounded Rationality

The concept that when individuals make decisions, their rationality is limited by the information they have, the cognitive limitations of their minds, and the time available to make the decision.