Auditors use the audit risk model to identify areas of the financial statements that are most at risk for material misstatement. Once risks are identified, auditors can more effectively determine their audit strategy.

Required
For each item listed below, select the component of the audit risk model that is impacted: inherent risk (IR), control risk (CR), detection risk (DR), or not applicable (NA). The components may be used once, more than once, or not at all. Select only one answer for each item.
a. A client operates in the technology industry; therefore, inventory can become obsolete quickly.
b. Auditors decide to select a larger sample size when auditing a client’s accounts receivable balance.
c. A common benchmark used when determining planning materiality is net income before taxes.
d. A tremendous amount of cash flows through a casino and is handled by many employees.
e. A small client does not have enough employees to separate the duties of receiving inventory and recording inventory.
f. A senior auditor failed to closely supervise and review the work of a first-year auditor.
g. A client that operates movie theaters is experiencing a period of declining revenue due to the popularity of streaming services.
h. An audit firm considers independence requirements before accepting a new client.
i. A client has recently installed a state-of-the-art security system for its inventory warehouse.
j. A client is geographically located in an area with little threat from natural disaster.