Question

An auditor assesses the risk of material misstatement because it

a. is relevant to the auditor's understanding of the control environment.
b. provides assurance that the auditor's overall materiality levels are appropriate.
c. indicates to the auditor where inherent risk may be the greatest.
d. affects the level of detection risk that the auditor may accept.

Answer 1

Choice (d) is the most correct. When an auditor looks at the risks involved with possible misstatements (control risk and inherent risk), it helps him or her understand the detection risk that could stem from using the wrong procedures or making the wrong decisions during the audit.