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A comprehensive overview of audit risk, covering key concepts, the audit risk model, and the assessment process. It delves into the components of audit risk, including inherent risk, control risk, and detection risk, and explores their relationships. The document also examines the role of management's strategies and business risks in the audit risk assessment process, outlining the procedures auditors use to understand the entity and its environment. It further discusses the identification and assessment of fraud risk factors, including the fraud risk triangle, and provides insights into the auditor's response to risk.
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Audit Risk correct answer: - The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.
prevented, or detected and corrected, on a timely basis by the entity's internal control Risk of Material Misstatement (RMM) correct answer: - The combined inherent and control risk; in other words, the likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control.
Relationship of Entity's Business Risks to Audit Risk Model correct answer: Management's Strategies, Objectives and Business Risks correct answer: - Strategies are the operational approaches used by management to achieve its objectives.
Auditor's Understanding of an Entity and its Environment correct answer: Gather knowledge about:
auditor's risk assessment procedures and audit responses to identified risks.