Explain why there is an inverse relationship between planned detection risk and the amount of evidence an auditor collects for a specific audit objective.

Question content area bottom

Part $1$

A$.$

Planned detection risk is a measure of the$$ auditor's assessment of the risk that a material misstatement could occur in an assertion and not be prevented or detected on a timely basis by the$$ client's internal controls. In order to reduce this$$ risk, the auditor would increase the amount of performance materiality and collection of evidence for specific audit objective. For$$ example, if the auditor wanted a low level of risk that audit procedures designed to test the existence of inventory fail to detect a material$$ misstatement, they would increase the amount of inventory tested$$ and$/$or the number of audit procedures performed.

B$.$

Planned detection risk is the risk that the auditor or audit firm will suffer harm because of a client$$ relationship, even though the audit report rendered for the client was correct. In order to reduce this$$ risk, the auditor would increase the amount of evidence they collect for a specific audit objective. For$$ example, if the auditor wanted a low level of risk that audit procedures designed to test the existence of inventory fail to detect a material$$ misstatement, they would increase the amount of inventory tested$$ and$/$or the number of audit procedures performed.

C$.$

Planned detection risk is a measure of the$$ auditor's assessment of the susceptibility of an assertion to material misstatement before considering the effectiveness of internal control. In order to reduce this$$ risk, the auditor would increase the amount of performance materiality and collection of evidence for specific audit objective. For$$ example, if the auditor wanted a low level of risk that audit procedures designed to test the existence of inventory fail to detect a material$$ misstatement, they would increase the amount of inventory tested$$ and$/$or the number of audit procedures performed.

D$.$

Planned detection risk is the risk that audit evidence for a segment will fail to detect misstatements that could be$$ material, should such misstatements exist. In order to reduce this$$ risk, the auditor would increase the amount of evidence they collect for a specific audit objective. For$$ example, if the auditor wanted a low level of risk that audit procedures designed to test the existence of inventory fail to detect a material$$ misstatement, they would increase the amount of inventory tested$$ and$/$or the number of audit procedures performed.