Chapter 5 Question and answers 100%
correct 2025/2026
Relationship between detection and audit risk - correct answer ✔For a given level of audit risk, a
detection risk varies inversely with risk the risk of misstatement. The greater risk of material
misstatement, the less detection risk auditors can generally accept.
Two components of the risk of material misstatement - correct answer ✔Inherent risk and control risk
Inherent risk - correct answer ✔Is the risk that material misstatement will occur when there is no
control present. Cannot be mitigated because it occurs independently of the auditors.
When in the course of an audit should the auditor apply analytical procedures? - correct answer ✔Early
in the planning stages, during fieldwork and definitely at the end of the audit.
Major purposes of obtaining a Representation letter - correct answer ✔1. Make clients aware of their
primary responsibility to the financial statements.
2. Document questions asked by the auditors during the engagement
3. To provide audit evidence where accounting presentation depends on managements intentions in the
future.
Major functions of audit working papers - correct answer ✔1. Providing evidence of achievement of
objectives
2. Evidence that the audit was performed in accordance to GAAS
3. Providing evidence that supports the financial audit opinion.
Why are prior years audit working papers useful for staff as reference? - correct answer ✔1. Audits are
usually similar
correct 2025/2026
Relationship between detection and audit risk - correct answer ✔For a given level of audit risk, a
detection risk varies inversely with risk the risk of misstatement. The greater risk of material
misstatement, the less detection risk auditors can generally accept.
Two components of the risk of material misstatement - correct answer ✔Inherent risk and control risk
Inherent risk - correct answer ✔Is the risk that material misstatement will occur when there is no
control present. Cannot be mitigated because it occurs independently of the auditors.
When in the course of an audit should the auditor apply analytical procedures? - correct answer ✔Early
in the planning stages, during fieldwork and definitely at the end of the audit.
Major purposes of obtaining a Representation letter - correct answer ✔1. Make clients aware of their
primary responsibility to the financial statements.
2. Document questions asked by the auditors during the engagement
3. To provide audit evidence where accounting presentation depends on managements intentions in the
future.
Major functions of audit working papers - correct answer ✔1. Providing evidence of achievement of
objectives
2. Evidence that the audit was performed in accordance to GAAS
3. Providing evidence that supports the financial audit opinion.
Why are prior years audit working papers useful for staff as reference? - correct answer ✔1. Audits are
usually similar
