Question

Which of the following statements is false as it relates to the auditor's responsibility to document the risk assessment?

A) The documentation may include the use of questionnaires.
B) Management's response to high-risk areas identified by the auditor should be included in the documentation.
C) The level of risk must be set quantitatively (i.e., inherent risk is 60%).
D) All of the above are false.

Answer 1

The false statement is that the level of risk must be set quantitatively.

Step-by-step explanation:

The false statement as it relates to the auditor's responsibility to document the risk assessment is option C) The level of risk must be set quantitatively (i.e., inherent risk is 60%).

Risk assessment is a qualitative analysis, not a quantitative one. It involves evaluating the likelihood and impact of risks, but it does not assign specific numbers or percentages to represent the level of risk.

For example, in risk assessment, the auditor might identify a high-risk area in the company's financial statements due to inadequate internal controls. The documentation would include the auditor's assessment of the risk, the specific control weaknesses observed, and recommendations for improvement.