Chapter 9

The acceptance by auditors that there is some level of uncertainty in performing the audit function.

An identified and assessed risk of material misstatement that, in the auditor's professional judgment, requires special audit consideration due to the combination of the likelihood of the misstatement occurring and the potential magnitude should a misstatement occur.

A transaction that is unusual, due to either size or nature, and that is infrequent in occurence.

A measure of the auditor's assessment of the susceptibility of an assertion to material misstatement before considering the effectiveness of internal control.

A measure of the auditor's assessment of the risk that a material misstatement could occur in an assertion and not be prevented or detected and corrected on a timely basis by the client's system of internal control.

A complement to acceptable audit risk; an acceptable audit risk of 2% is the same as 98% of this; also called overall assurance and level of assurance.

The risk that the auditor or audit firm will suffer harm because of a client relationshio, even though the audit report issued for the client was correct.

Acceptable audit risk:
Low - low willingness to permit material misstatements to exist after completing the audit
Medium - some willingness to permit material misstatements to exist after completing the audit
High - high willingness to permit material misstatements to exist after completing the audit
Inherent risk:
Low - expect few misstatements before considering internal control
Medium - expect some misstatements before considering internal control
High - expect many misstatements before considering internal control
Control risk:
Low - high effectiveness of internal controls to prevent, or detect and correct, material misstatements
Medium - medium effectiveness of internal controls to prevent, or detect and correct, material misstatements
High - low effectiveness of internal controls to prevent, or detect and correct, material misstatements
Planned detection risk:
Low - high level of evidence the auditor plans to accumulate
Medium - medium level of evidence the auditor plans to accumulate
High - low level of evidence the auditor plans to accumulate
Planned evidence:
Low - less substantive evidence needs to be accumulated, due to planned detection risk being high
Medium - some substantive evidence needs to be accumulated, due to planned detection risk being medium
High - more substantive evidence needs to be accumulated, due to planned detection risk being low

1. AAR, IR, and CR are all medium. planned detection risk is therefore medium, and planned evidence is also medium.
2. AAR and IR are low, however CR is high. planned detection risk is therefore low and planned evidence is high.
3. AAR is high, but IR and CR are low. planned detection risk is then high and planned evidence is low.
4. AAR and IR are high, but control risk is low. therefore, planned detection risk is medium and planned evidence is also medium.
5. AAR is high, IR and CR are medium. therefore, planned detection risk is medium and planned evidence is also medium.
6. AAR is low, and IR and CR are high. therefore, planned detection risk is low and planned evidence is high.

(1) increase in planned evidence
(2) decrease in planned evidence
(3) increase in planned evidence
(4) decrease in planned evidence
(5) no effect in planned evidence