Joined: 31 May 2008 Location: United States
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Posted: 07 Jun 2008 at 00:03 | IP Logged
eddie500 wrote:
AngeB wrote:
According to the Becker material cpa2008 is correct Question 1 is C and Question 2 is A.
For the second question I thought it was D but that wasn't right and that is why I was confused. So this means Detection Risk is inversely related to Substantive and directly related to RMM
Can't say I agree, I would write becker directly, they do make mistakes. maybe someone else can put in their input.
I do agree. I don't use Becker, and my study materials had the same Qs and I agree with the answers.
First Q: Detection risk is the risk of not detecting a material misstatement. High risk means there are probably few misstatements (think needle in a haystack) and low risk means that misstatements are prevalent & the risk of not detecting them is slim (it's easier to find when there's a lot). So, If you LOWER detection risk, you're essentially saying there are many misstatements, therefore, you would increase substantive testing to gain assurance about the amounts in the f/s. It's not A nor B because TOC are neither here nor there at this point. Not only that, TOC are optional whereas substantive testing (test of details) is mandatory. It's not D because the 2 are inversely related, hence, they cannot move in the same direction.
Second Q: The answer is A..goes along with everything I said in the previous paragraph. It's not B because risk of misapplying audit procedures is related to detection risk (if you do the procedures wrong, there is a probably chance you will fail to detect a MM). It's not C - I don't have a great explanation for this other than it doesn't make a whole lot of sense to me. Risks exist regardless of materiality levels, therefore I don't see how this answer makes any sense. It's not D because that answer describes what detection risk IS, but that is not what the question is asking for.
Joined: 27 Jun 2007
Online Status: Offline Posts: 123
Posted: 22 Jun 2008 at 03:02 | IP Logged
Substantive procedures is directly related to detection risk (auditor will perform more substantive procedures if the risk of not detecting material misstatements is high.
Substantive procedures is inversely related to ACCEPTABLE level of detection risk (auditor will perform more substantive procedures because auditor will accept or assume only a low level of risk of not detecting material misstatements; also means, the auditor will perform more substantive procedures so the risk of not detecting misstatements is less.)
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Topic: Substantive Tests Confusion
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