Question

Finding an appropriate combination of audit procedures to minimize an engagement's audit risk _______.

1) can be challenging
2) is generally fairly straightforward
3) is the responsibility of the internal audit function
4) is the responsibility of management

Answer 1

Finding an appropriate combination of audit procedures to minimize audit risk can be challenging. It requires auditors to use professional judgment and consideration of various factors, it is not the responsibility of the internal audit function or management, but that of the external auditors.

Step-by-step explanation:

Finding an appropriate combination of audit procedures to minimize an engagement's audit risk can be challenging. Audit risk is the risk that auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated. The level of audit risk considered acceptable is usually very low, given that the consequences of an incorrect audit opinion can be severe, including financial loss, damage to reputation, and legal ramifications. As such, auditors must carefully consider the nature of the engagement, the entity's environment, and their understanding of the entity's internal control to design effective audit procedures.

Contrary to some beliefs, this task is not the responsibility of the internal audit function or management, but falls upon the external auditors who are conducting the financial statement audit. They must use their professional judgment to determine the types of audit tests to perform, such as inspections, observations, confirmations, and other procedures that provide the evidence needed to support their opinion. This process requires a thorough understanding, application of auditing standards, and may involve tailoring procedures to the specific context of the engagement.

Answer 2

Finding an appropriate combination of audit procedures is challenging and is the responsibility of the external auditor, not of management or internal audit. The auditor must tailor the audit plan to address the unique risks of each engagement through their professional assessment.

The correct option is 1.

Step-by-step explanation:

Finding an appropriate combination of audit procedures to minimize an engagement's audit risk can be challenging. When conducting an audit, auditors must assess the unique aspects of each engagement, which includes understanding the entity's environment, its internal control, and the risk of material misstatement.

This assessment is critical in determining the nature, timing, and extent of audit procedures to be applied to reduce audit risk to an acceptably low level.

The internal audit function may assist in providing insight into the internal control effectiveness, but it is the external auditor's responsibility to design and execute an audit plan that effectively addresses identified risks.

Management of the company is responsible for establishing and maintaining effective internal controls, but not for determining the audit procedures. Therefore, selecting and implementing audit procedures is a task inherently tied to the external auditor's professional judgment and expertise.

The correct option is 1.