Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

Financial Accounting

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

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Multiple Choice

Inherent risk and control risk differ from detection risk in which of the following ways?

They are only relevant after the auditor has completed substantive testing.

They are determined solely by the auditor's procedures during the audit.

They exist independently of the audit and cannot be directly influenced by the auditor.

They are part of the auditor's responsibility to reduce to zero.

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Verified step by step guidance

Understand the three types of audit risks: inherent risk, control risk, and detection risk. Inherent risk refers to the susceptibility of an account or transaction to material misstatement, assuming no related controls. Control risk is the risk that a material misstatement will not be prevented or detected by the entity's internal controls. Detection risk is the risk that the auditor's procedures will fail to detect a material misstatement.

Recognize the distinction between inherent risk and control risk versus detection risk. Inherent risk and control risk exist independently of the audit process and are characteristics of the entity and its environment. Detection risk, on the other hand, is directly influenced by the auditor's procedures and decisions during the audit.

Note that inherent risk and control risk cannot be directly influenced by the auditor. These risks are determined by factors such as the nature of the entity's operations, the complexity of transactions, and the effectiveness of internal controls, which are outside the auditor's control.

Understand that detection risk is part of the auditor's responsibility and can be managed by adjusting the nature, timing, and extent of audit procedures. The auditor aims to reduce detection risk to an acceptable level to ensure the audit provides reasonable assurance.

Conclude that inherent risk and control risk differ from detection risk because they exist independently of the audit and cannot be directly influenced by the auditor, whereas detection risk is influenced by the auditor's actions and procedures.