An auditor must understand audit risk and its components when planning a financial report audit. The auditor evaluates the risk of material misstatement by disaggregating it into three components: inherent risk, control risk and detection risk.

Required:

For each of the situation in the table below, select the component of audit risk that is most directly illustrated. The components of audit risk may be used once, more than once, or not at all. (5 marks)

Situation

Component of audit risk (select IR or CR or DR and fill the box below)

(a) lack of adequate planning when conducting the

audit

(b) Confirmation of receivables by an auditor fails

to detect a material misstatement

(c) Complex calculations have occurred and

processed by the accounting team

(d) Absence of bank reconciliations in the

accounting department

(e) Stocktake procedures and policies are not

followed when counting stock