Question

Which of the following statements regarding risk assessment is correct?

1) An auditor will perform various risk assessment procedures to ensure that appropriate attention is paid to the accounts and transactions least at risk of being materially misstated.
2) Information risk is the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.
3) Auditors make preliminary risk assessments while planning the audit.
4) AU-C 300 Planning an Audit and AS 2101 Audit Planning require auditors to plan the audit by assessing risk to increase audit risk to an acceptably high level.

Answer 1

The correct statement about risk assessment is that auditors make preliminary risk assessments when planning an audit. Information risk is the risk of an auditor expressing an incorrect opinion when financial statements are materially misstated.

Step-by-step explanation:

The correct statement regarding risk assessment is that auditors make preliminary risk assessments while planning the audit. To ensure an effective audit, an auditor will perform various risk assessment procedures to concentrate efforts on accounts and transactions at higher risk of material misstatement, not the least at risk. Information risk refers to the risk of an auditor expressing an incorrect opinion on financial statements that are materially misstated. Auditors must plan the audit by assessing risks to reduce audit risk to an acceptably low level, not to increase it to a high level. This is important to maintain the quality and integrity of the audit.

When looking at the financial market, investors need to analyze the risk involved in different types of financial assets. Key considerations include the volatility of the investment, the credit risk involved, liquidity, interest rate risk, market risk, and the overall economic conditions that can affect the performance of financial assets.