Audit Evidence and Risk Assessment: Assertions, Components, and

School: Purdue Global University - Course: NU 416 - Subject: Accounting

AC410 Auditing Unit 3 Assignment 1 1/24/2023 Unit 3 Assignment 1 Assignment 1: Audit Evidence and Risk Assessment LO 5-1 5-36. Financial statements contain a number of assertions about account balances, classes of transactions, and disclosures. a. Identify who makes these assertions. While financial statements contain a number of assertions about account balances, classes of transactions and disclosures. I believe the management of the organization would make the assertions regarding financial statements(Whittington 2021). b. List and describe each of the assertions regarding each financial statement component. a.)Existence- Information recording of assets, liabilities and equity must exist during that accounting period(Whittington 2021). b.) Completeness- Each item in the financial statement is related to the same accounting period and happened in the same accounting year. c.) Accuracy, valuation, and allocation- The assets, liabilities and equity interest should be included, and all information should be accurately recorded in the financial statements(Whittington 2021). d.)Rights and obligations- Company holds and controls the rights of using the assets and the liabilities are at the company's liabilities(Whittington 2021). e.) Disclosure and presentation- All disclosures must be disclosed regarding the financial statements. There should be footnotes to give clear understanding of the financial position of the company(Whittington 2021). LO 5-1, 2, 3 5-48. State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk.

a.The risk of material misstatement is composed of the three components of audit risk. Incorrect b.Inherent risk is the possibility of material misstatement before considering the client's internal control. Correct c.Less control risk means an increase in the risk of material misstatement. Incorrect d.Detection risk does not exist when no audit is performed. Correct e.Rather than restrict detection risk through the performance of more substantive procedures, auditors assess it. Incorrect f.Absent any other changes, an increase in the risk of material misstatement results in an increase in audit risk. Incorrect g.Audit risk refers to the possibility that the auditors may express an inappropriate opinion on financial statements that are materially or immaterially misstated. Incorrect h.Both inherent risk and control risk exist independently of the audit of financial statements.