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For each of the independent situations below, consider how t…
For each of the independent situations below, consider how the new information affects the audit risk model and the auditor’s planned audit evidence. For each situation, indicate whether Acceptable Audit Risk (AR), Inherent Risk (IR), Control Risk (CR), Detection Risk (DR), and Planned Audit Evidence will Increase, Decrease, or remain unchanged (No Change). Assume that all other factors not affected by the information provided remain unchanged. Use the following audit risk model: AR = IR × CR × DR 1. Maxine’s Auto Parts Supply Company has been audited by your firm for the past two years. During the current-year audit, you learn that the company’s office manager, who has access to cash and accounts receivable records, was convicted of embezzlement while employed by another company. Consider the effect of this new information on the audit of Cash and Accounts Receivable. AR IR CR DR Planned evidence 2. Summit Outdoor Equipment, Inc. has been a privately held company and a client of your audit firm for several years. During the current year, the company announces plans to complete an initial public offering (IPO). As a result, the audited financial statements will be relied upon by a significantly larger group of investors and other external users. Assume there have been no significant changes in the company’s operations, internal controls, or other factors affecting the risk of material misstatement. Consider the effect of this new information on the audit risk model and planned audit evidence. AR IR CR DR will Planned evidence will
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