An audit team uses the assessed risk of material misstatement to
A) Evaluate the effectiveness of the entity's internal control policies and activities.
B) Identify transactions and account balances where inherent risk is at the maximum.
C) Indicate whether materiality thresholds for planning and evaluation purposes are sufficiently high.
D) Determine the acceptable level of detection risk for financial statement assertions.

Question

Quizplus · Accepted Answer

The assessed risk of material misstatement is used by the audit team to determine the acceptable level of detection risk for financial statement assertions. This allows the team to plan their audit procedures accordingly and ensure they are sufficient to detect material misstatements in the financial statements. Option A is incorrect, as the assessed risk of material misstatement is not used to evaluate the effectiveness of the entity's internal control policies and activities. Option B is incorrect, as the assessed risk of material misstatement is not necessarily related to inherent risk. Option C is incorrect, as materiality thresholds are based on materiality considerations rather than the assessed risk of material misstatement.

An Audit Team Uses the Assessed Risk of Material Misstatement