Question 2 (5 marks)

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) less substantive testing conducted in the audit although internal controls were weak

(b) risk that the sample of the audit is not a representative of the population

(c) large volume of cash held on premises without proper safe keeping

(d) Inadequate supervision and authorisation when paying suppliers

(e) ineffective audit procedures and evaluation of results by the auditor