Question

Select each of the following terms with the appropriate attributes. No reply is used more than once. Term Attributes

1. Inherent risk
2. Integrated audit
3. Further audit procedures
4. Suitable criteria
5. Control risk

Answer 1

Inherent risk refers to the risk of misstatement in financial statements before considering internal controls. An integrated audit includes both the examination of financial statements and the internal controls of a company. Further audit procedures are additional audit procedures performed when auditors need more evidence or detailed information.

Step-by-step explanation:

1. Inherent risk: Inherent risk refers to the risk of misstatement in financial statements before considering internal controls. It is the risk that exists due to the nature of the business or industry. For example, a company operating in a highly volatile industry like oil and gas exploration will have higher inherent risk compared to a company operating in a stable industry like consumer goods.
2. Integrated audit: An integrated audit is an audit that includes both the examination of financial statements and the internal controls of a company. It involves evaluating the design and effectiveness of controls to assess control risk. Integrated audits provide assurance on both the financial statements and internal controls, allowing auditors to provide a more comprehensive opinion.
3. Further audit procedures: Further audit procedures are additional audit procedures performed when auditors need more evidence or detailed information to support their opinion. These procedures are performed after initial audit procedures, such as risk assessment and testing of controls. Examples of further audit procedures include substantive testing of account balances, analytical procedures, and confirmation from third parties.
4. Suitable criteria: Suitable criteria refer to the standards or benchmarks used to evaluate the subject matter of an audit or review engagement. The criteria must be relevant to the financial reporting framework and appropriate for the specific engagement. For example, the International Financial Reporting Standards (IFRS) are suitable criteria for auditing financial statements of companies that use IFRS as their reporting framework.
5. Control risk: Control risk is the risk that a material misstatement could occur in the financial statements due to a failure or weakness in internal controls. It reflects the risk that the company's controls will not prevent or detect errors or fraud. Auditors assess control risk to determine the extent of substantive testing required to obtain sufficient and appropriate evidence.