To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:

Last Updated on February 2, 2022 by Admin 3

On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk, and therefore the risk of material misstatement, from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:

  • Increase inherent risk.
  • Increase materiality levels.
  • Decrease substantive testing.
  • Decrease detection risk. 
Explanation:
Choice “D” is correct. Decrease “detection risk.” Overall audit risk is made up of the risk of material misstatement and detection risk. The risk of material misstatement is itself comprised of two separate risks, inherent risk and control risk. When the assessed level of control risk is increased, the risk of material misstatement also increases, and detection risk must be decreased to achieve an overall audit risk level that is substantially the same as the planned audit risk level.
Choice “A” is incorrect. The auditor cannot change inherent risk.
Choice “B” is incorrect. The established materiality level is not a component of overall audit risk.
Choice “C” is incorrect. If the assurance directly provided from substantive tests decreased, detection risk would increase because direct tests have become less beneficial.
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