Final answer:
When the risk of material misstatement is high, an auditor must increase the level of audit evidence required in order to lower the detection risk and ensure that the overall audit risk remains at an acceptable Option 3 is correct answer.
Step-by-step explanation:
The question concerns the level of audit evidence required when the risk of material misstatement is assessed as high during an audit of property, plant and equipment. In auditing, there are three components of the audit risk model: inherent risk, control risk, and detection risk. These components help an auditor decide the amount of evidence needed to conclude that the financial statements are free of material misstatement. Inherent risk and control risk are assessed by the auditor, and based on these, the auditor sets the detection risk to maintain an acceptable audit risk level.
When Mario Tomasso assesses the risk of material misstatement as high for Bricksburg Corp, he is signaling that there is a greater likelihood that there may be significant undetected misstatements. Therefore, to keep the overall audit risk at an acceptable level, he sets the detection risk at low. Detection risk is inversely proportional to the risk of material misstatement, meaning that when the likelihood of error is high, auditors must decrease the detection risk by obtaining more persuasive audit evidence. Consequently, the answer to the student's question is that the level of audit evidence required would be increased (option 3).