I. For each case, calculate planned [desired] detection risk:

Case 1 Case 2 Case 3 Case 4 Case 5

Audit risk 1% 1% 5% 1% 1%

Inherent risk 40% 60% 40% 20% 20%

Control risk 60% 40% 60% 20% 40%

II. Define the terms: 1. Audit risk, 2. Control risk, and 3. Inherent risk. State whether Detection Risk varies directly or indirectly with each risk.

III. Contrast Case 4 with Case 5.

III A. Would the auditor have to do more or less substantive testing in case 5 compared to case 4?

III B. Explain, by referring to the audit risk model.

III C. Now explain, without referring to the audit risk model.