Question

On the basis of audit evidence gathered and evaluated, an auditor decides to increase assessed control risk from that originally planned. To achieve an audit risk level (AcAR) that is substantially the same as the planned audit risk level (AAR), the auditor will

(1) increase inherent risk.
(2) increase materiality levels.
(3) decrease substantive testing.
(4) decrease planned detection risk.

Answer 1

To achieve an audit risk level (AcAR) that is substantially the same as the planned audit risk level (AAR), the auditor will decrease planned detection risk.

Step-by-step explanation:

To achieve an audit risk level (AcAR) that is substantially the same as the planned audit risk level (AAR), the auditor will decrease planned detection risk.

Planned detection risk is the risk that the audit evidence fails to detect material misstatements, even though they exist. By decreasing planned detection risk, the auditor is increasing the level of assurance provided by substantive testing, which involves testing the details of transactions and account balances.

Increasing the assessed control risk (the likelihood that the client's internal controls are not effective) would actually decrease audit assurance, as the auditor would rely less on the client's controls. Increasing inherent risk (the risk of material misstatement in the absence of internal controls) would also decrease audit assurance, as there would be a higher risk of material misstatement.