Risk

Question 1

business risk

Answer 1

threat to an organisation not meeting objectives

Question 2

audit risk

Answer 2

the auditor expresses an inappropriate audit opinion when financial statements are materially misstated (type-2 error: 5%)

Question 3

engagement risk

Answer 3

litigation, reputation, profitability

Question 4

Detection risk

Answer 4

risk that auditor will not detect a material misstatement

Question 5

audit risk

Answer 5

risk that auditor expresses inappropriate opinion (5%)

Question 6

likelihood of error high (audit vs business risk)

Answer 6

• audit risk model dominates business risk
• no business risk premium

Question 7

likelihood of irregularity high (fraud risk)

Answer 7

• business risk model dominates audit risk model
• business risk premium

Question 8

risk

Answer 8

a threat to an organisation that reduces the likelihood that the organisation will achieve one or more of its objectives

Question 9

RMM (risk of material misstatement)

Answer 9

risk that financial statements are misstated prior to the audit

Question 10

fraud triangle (components)

Answer 10

• incentive or pressure to commit fraud
• opportunity to carry out fraud
• attitude or rationalization to justify fraud

Question 11

primary responsibility fraud

Answer 11

primary resonsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management

Question 12

secondary responsibility fraud

Answer 12

sufficient to identify and assess the risks of RMM of financial statements whether due to fraud or error