For each case, calculate planned [desired] detection risk:

                                                Case 1        Case 2         Case 3         Case 4       Case 5

Audit risk                                 1%              1%               5%               1%              1%

Inherent risk                         40%           60%              40%              20%           20%

Control risk                           60%           40%              60%              20%           40%

II. Define the terms: 1. Audit risk, 2. Control risk, and 3. Inherent risk.   State whether Detection Risk varies directly or indirectly with each risk.

III. Contrast Case 4 with Case 5.

III A. Would the auditor have to do more or less substantive testing in case 5 compared to case 4?

III B. Explain, by referring to the audit risk model.

III C. Now explain, without referring to the audit risk model.