The engagement partner agreed with Sessions’s recommended approach. In planning the audit evidence for detailed inventory tests, the audit risk model was applied with the following results:

TDR = AAR/IR x CR x APR

Where:

TDR = test of details risk

AAR = acceptable audit risk

IR = inherent risk

CR = control risk

APR = analytical procedures risk

Therefore, using Sessions’s assessments and judgments as described previously,

TDR = .05/1.0 x .5 x.6

TDR = .17

a. Explain what .17 means in this audit.

b. Calculate TDR assuming that Sessions had assessed control risk at 100% and all other risks as they are stated.

c. Explain the effect of your answer in requirement b on the planned audit procedures and sample size in the audit of inventory compared with the .17 calculated by Sessions.



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