AUDITING THEORY - CHAPTER 4
QUESTIONS AND VERIFIED ANSWERS
Detection risk ANSW✅✅The risk that the procedures performed by the auditor will not detect a
misstatement that exists and that could be material, either individually or when aggregated with
other misstatements.
Engagement risk ANSW✅✅The risk that the auditor is exposed to financial loss or damage to his
or her professional reputation from litigation, adverse publicity, or other events arising in connection
with financial statements audited and reported on.
Errors ANSW✅✅unintentional misstatements or omissions of amounts or disclosures.
Factual misstatements ANSW✅✅These are misstatements about which there is no doubt. For
example, an auditor may test a sales invoice and determine that the prices applied to the products
ordered are incorrect. Once the products are correctly priced, the amount of misstatement is
known. In such cases, the auditor knows the exact amount of the misstatement.
Fraud ANSW✅✅An intentional act by one or more among management, those charged with
governance, employees, or third parties, involving the use of deception that results in a
misstatement in the financial statements.
Inherent risk ANSW✅✅The susceptibility of an assertion in an account or disclosure to a
misstatement due to error or fraud that could be material, either individually or when aggregated
with other misstatements, before consideration of any related controls.
Judgmental misstatements ANSW✅✅These are misstatements that arise from the judgments of
management concerning accounting estimates that the auditor considers unreasonable or the
selection or application of accounting policies that the auditor considers inappropriate.
Nonsampling risk ANSW✅✅The risk that auditors will make judgment errors caused by the use of
inappropriate audit procedures or misinterpretation of audit evidence and failure to recognize a
misstatement or deviation.
QUESTIONS AND VERIFIED ANSWERS
Detection risk ANSW✅✅The risk that the procedures performed by the auditor will not detect a
misstatement that exists and that could be material, either individually or when aggregated with
other misstatements.
Engagement risk ANSW✅✅The risk that the auditor is exposed to financial loss or damage to his
or her professional reputation from litigation, adverse publicity, or other events arising in connection
with financial statements audited and reported on.
Errors ANSW✅✅unintentional misstatements or omissions of amounts or disclosures.
Factual misstatements ANSW✅✅These are misstatements about which there is no doubt. For
example, an auditor may test a sales invoice and determine that the prices applied to the products
ordered are incorrect. Once the products are correctly priced, the amount of misstatement is
known. In such cases, the auditor knows the exact amount of the misstatement.
Fraud ANSW✅✅An intentional act by one or more among management, those charged with
governance, employees, or third parties, involving the use of deception that results in a
misstatement in the financial statements.
Inherent risk ANSW✅✅The susceptibility of an assertion in an account or disclosure to a
misstatement due to error or fraud that could be material, either individually or when aggregated
with other misstatements, before consideration of any related controls.
Judgmental misstatements ANSW✅✅These are misstatements that arise from the judgments of
management concerning accounting estimates that the auditor considers unreasonable or the
selection or application of accounting policies that the auditor considers inappropriate.
Nonsampling risk ANSW✅✅The risk that auditors will make judgment errors caused by the use of
inappropriate audit procedures or misinterpretation of audit evidence and failure to recognize a
misstatement or deviation.
