Explain why inherent risk is set for audit objectives for segments (classes of transactions, balances, and related disclosures) rather than for the overall audit. What is the effect on the amount of evidence the auditor must accumulate when inherent risk is increased from medium to high for an audit objective?

Explain why inherent risk is set for audit objectives for segments rather than for the overall audit.

A.

Inherent risk is set for audit objectives for segments rather than for the overall audit because it is more efficient and saves the client money. By identifying the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the client's internal controls, the auditor is thereby able to modify the audit report.

B.

Inherent risk is set for audit objectives for segments rather than for the overall audit because misstatements occur at the objective level within a segment. By identifying expectations of misstatements in segments, the auditor is thereby able to modify audit evidence by searching for misstatements in those segments.

C.

Inherent risk is set for audit objectives for segments rather than for the overall audit because the auditor cannot rely on the internal controls. By identifying how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and issued an unqualified audit opinion, the auditor will be able to reissue a new audit report.

D.

Inherent risk is set for audit objectives for segments rather than for the overall audit because it lowers the auditor's engagement risk. By identifying the risk that audit evidence for a segment will detect misstatements exceeding a tolerable amount, should such misstatements exist, the auditor is thereby able to modify audit report.

What is the effect on the amount of evidence the auditor must accumulate when inherent risk is increased from medium to high for an audit objective?

When inherent risk is increased from medium to high, the auditor should

the audit evidence accumulated