Question

Which of the following is a correct statement?

1) The auditor uses the control risk assessment and results of tests of controls to determine planned detection risk.
2) The auditor links the inherent risk assessments to the balance-related audit objectives.
3) The audit risk model is used determine the level of audit risk.
4) All of the above are correct statements.

Answer 1

The correct statement among the options provided is number 4) All of the above are correct statements. These statements are related to the audit risk model, which auditors use to assess control risk, inherent risk, and to set the planned detection risk during the audit planning process.

Step-by-step explanation:

The subject of this question is auditing, which falls within the broader discipline of accounting and more specifically under the business field. The question pertains to the understanding of concepts related to the audit risk model and how different types of risks are assessed and used by auditors in planning audit procedures.

Now, addressing the statement in question, number 4) - All of the above are correct statements - seems to be the right answer. The audit risk model is the basis for all audit planning, and as such:

1. The auditor does indeed use the control risk assessment and results of tests of controls to determine planned detection risk.
2. The auditor links the inherent risk assessments to the balance-related audit objectives. This means that high inherent risks will typically lead to more extensive audit procedures.
3. Finally, the audit risk model itself is indeed used to determine the acceptable level of audit risk, which helps the auditor decide the nature, timing, and extent of audit procedures.