auditing

5-50. Audit risk should be considered when planning and performing an audit of financial statements in accordance with generally accepted auditing standards. Required: a. Define audit risk. b. Describe its components of inherent risk, control risk, and detection risk. c. Explain the interrelationship among these components. d. Which (if any) of these components is completely a function of the sufficiency of the evidence gathered by the auditors' procedures? Explain your answer. 191 5-39. Analytical procedures are extremely useful throughout the audit. Required: a. Explain how analytical procedures are useful in (1) The risk assessment stage of the audit. (2) The substantive procedures stage of the audit. (3) Near the end of the audit. b. List the five sources of information that are available to the auditors in developing expectations for analytical procedures. c. List and describe four techniques that may be used by the auditors in developing expectations for analytical procedures. 5-54. Included in the financial statements are a variety of accounting estimates (e.g., allowance for doubtful accounts, obsolete inventory, warranty liability). Audit procedures should be designed to obtain evidence about the assertions of management related to all accounts, including those based on accounting estimates. Required: a. List three approaches to auditing accounting estimates. Provide an example of how an auditor might apply each of the three approaches in auditing the allowance for doubtful accounts, which management has established at 1 percent of credit sales. b. Discuss the meaning of the valuation or allocation assertion as it relates to the allowance for doubtful accounts. c. Discuss factors that bear on whether the allowance for doubtful accounts is likely to be an account with high inherent risk. 102