Chapter 4

Audit risk is the auditor's exposure to loss or injury of his or her reputation from events arising

in connection with financial statements audited.

• True

• False

Engagement risk is the auditor's exposure to loss or injury of his or her reputation from events

arising in connection with financial statements audited.

• True

• False

The components of the audit risk model include inherent risk, control risk, and detection risk.

• True

• False

Inherent risk is the susceptibility of an assertion to material misstatement, assuming no related

controls.

• True

• False

Professional judgment must be used when evaluating business risk.

• True

• False

The risk of a material misstatement includes inherent risk and sampling risk.

• True

• False

The combination of inherent risk and control risk is referred to as client risk.

• True

• False

Inherent risk includes sampling risk and detection risk.

• True

• False

Engagement risk is:

• A) the risk of issuing an incorrect audit opinion.

• B) the auditor's risk of loss from events arising in connection with financial statements audited

  and reported upon.

• C) the overall risk of material misstatement.

• D) the risk of the entity's financial failure

Client risk as defined in the text is:

• A) the auditor's risk of loss from events arising in connection with financial statements audited

  and reported upon.

• B) the overall risk of material misstatement.

• C) the risk that audit procedures will fail to detect material misstatements

• D) the risk of the entity's financial failure.