ACCT 470 Ch.9 HW

After making a preliminary assessment of the risk of material misstatement during planning and beginning to apply audit​ procedures, an auditor determines that this risk is actually higher than anticipated. Which would be the most likely effect of this finding on the​ auditor's desired level of detection risk and the overall level of audit​ risk, as compared to the levels originally​ planned? ​Auditor's Desired Level of Detection Risk Overall Level of Audit Risk 1. Decrease Same 2. Decrease Lower 3. Increase Same 4. Same Higher

1. Decrease Same

c. Inherent risk and control risk differ from planned detection risk in that they

1. arise from the misapplication of auditing procedures. 2. may be assessed in either quantitative or nonquantitative terms. 3. can be changed at the​ auditor's discretion. 4. exist independently of the financial statement audit.

Describe which two factors of the audit risk model relate to the risk of material misstatement at the assertion level.

1. Inherent Risk-Measures the​ auditor's assessment of the susceptibility of an assertion to material​ misstatement, before considering the effectiveness of related internal controls. 2. Control Risk-Measures the​ auditor's assessment of the risk that a material misstatement could occur in an assertion and not be prevented or detected on a timely basis by the​ client's internal controls.

a. Which of the following procedures would a CPA most likely perform during the planning stage of the​ audit? 1. Evaluate the reasonableness of​ management's allowance for doubtful accounts. 2. Determine areas where there is a higher risk of material misstatement. 3. Evaluate the significance of uncorrected misstatements. 4. Confirm a sample of accounts receivable.

2. Determine areas where there is a higher risk of material misstatement.

As lower acceptable levels of both audit risk and materiality are​ established, the auditor should plan more work on individual accounts to 1. increase the performance materiality in the accounts. 2. increase inherent risk in the accounts. 3. find smaller misstatements. 4. find larger misstatements.

3. find smaller misstatements.

b. ​Dan, CPA, has been engaged to audit Modern​ Home, a manufacturing company that specializes in furniture. Which of the following matters related to the year under audit would most likely result in an increase of inherent​ risk? 1. The furniture industry has experienced an overall increase in demand. 2. Modern Home purchased expensive new equipment in the current year. 3. Modern Home recently engaged in a complex derivative transaction. 4. Modern Home experienced an increase in working capital.

3. Modern Home recently engaged in a complex derivative transaction.

Which of the following does not increase the need for sufficient appropriate audit​ evidence? 1. An increase in the assessed control risk 2. A lower acceptable audit risk 3. A lower acceptable level of detection risk 4. A decrease in the assessed inherent risk

4. A decrease in the assessed inherent risk

As the acceptable level of detection risk​ decreases, the auditor may do one or more of the following except change the 1. nature of audit procedures to more effective procedures. 2. timing of audit​ procedures, by perhaps performing them at​ year-end rather than an interim date. 3. extent of audit​ procedures, by perhaps using larger sample sizes. 4. assurances provided by audit procedures to a lower level.

4. assurances provided by audit procedures to a lower level.

Explain why inherent risk is set audit objectives for segments rather than for the overall audit. A. Inherent risk is set for audit objectives for segments rather than for the overall audit because misstatements occur at the objective level within a segment. By identifying expectations of misstatements in​ segments, the auditor is thereby able to modify audit evidence by searching for misstatements in those segments. B. Inherent risk is set for audit objectives for segments rather than for the overall audit because it is more efficient and saves the client money. By identifying the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the​ client's internal​ controls, the auditor is thereby able to modify the audit report. C. Inherent risk is set for audit objectives for segments rather than for the overall audit because the auditor cannot rely on the internal controls. By identifying how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and issued an unqualified audit​ opinion, the auditor will be able to reissue a new audit report. D. Inherent risk is set for audit objectives for segments rather than for the overall audit because it lowers the​ auditor's engagement risk. By identifying the risk that audit evidence for a segment will detect misstatements exceeding a tolerable​ amount, should such misstatements​ exist, the auditor is thereby able to modify audit report.

A. Inherent risk is set for audit objectives for segments rather than for the overall audit because misstatements occur at the objective level within a segment. By identifying expectations of misstatements in​ segments, the auditor is thereby able to modify audit evidence by searching for misstatements in those segments.

Explain each term in the audit risk model: A. Planned detection risk is a measure of the risk that audit evidence for a segment will fail to detect misstatements exceeding a tolerable​ amount, should such misstatements exist. B. Control risk is a measure of the risk that audit evidence for a segment will fail to detect misstatements exceeding a tolerable​ amount, should such misstatements exist. C. Inherent risk is a measure of the​ auditor's assessment of the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the​ client's internal controls. D. Acceptable audit risk is a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued. E. Acceptable audit risk is a measure of how the​ auditor's willingness to allow that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued. F. Planned detection risk is a measure of the​ auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control. G. Inherent risk is a measure of the​ auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control. H. Control risk is a measure of the​ auditor's assessment of the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the​ client's internal controls.

A. Planned detection risk is a measure of the risk that audit evidence for a segment will fail to detect misstatements exceeding a tolerable​ amount, should such misstatements exist. D. Acceptable audit risk is a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued. G. Inherent risk is a measure of the​ auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control H. Control risk is a measure of the​ auditor's assessment of the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the​ client's internal controls.

Different CPA firms should attempt to achieve reasonably similar audit risks for clients with similar circumstances. Why is this statement​ true? A. The audit opinion issued by different auditors conveys the same meaning regardless of who signs the report. B. All auditors use the same mix of experienced and junior audit staff to complete the audit. C. Complete assurance of the accuracy of the financial statements is the primary goal of auditors. D. In all​ audits, auditors want to be certain that the financial statements are not materially misstated.

A. The audit opinion issued by different auditors conveys the same meaning regardless of who signs the report.

Define what is meant by inherent risk. A. Inherent risk is a measure of the​ auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control. .B. Inherent risk is a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued. C. Inherent risk is a measure of​ auditor's assessment of the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the​ client's internal controls. D. Inherent risk is a measure of the risk that the audit evidence for a segment will fail to detect misstatements exceeding a tolerable​ amount, should such misstatements exist.

A. Inherent risk is a measure of the​ auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control.

Match situation to risk factor: The client is one of the​ industry's largest based on its size and market share.

Acceptable audit risk

Match situation to risk factor: The client lacks sufficient working capital to continue operations.

Acceptable audit risk

Why is it important to distinguish the​ auditor's assessment of the risk of material misstatement due to fraud from the assessment of the risk of material misstatement due to​ error?

Auditing standards require the auditor to explicitly consider fraud risk because the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting a misstatement due to error. Fraud often involves complex and sophisticated schemes designed by perpetrators to conceal it.​ And, individuals engaged in conducting a fraud often intentionally misrepresent information ​, and they may try to conceal the transaction through collusion with others. As a​ result, explicitly focusing on the risks of material misstatements due to fraud helps the auditor apply professional skepticism as part of the​ auditor's planning procedures.

Explain what is meant by the term acceptable audit risk. A. Acceptable audit risk is a measure of the​ auditor's assessment of the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the​ client's internal controls. B. Acceptable audit risk is a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued. C. Acceptable audit risk is a measure of the​ auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control. D. Acceptable audit risk is a measure of the risk that audit evidence for a segment will fail to detect misstatements exceeding a tolerable​ amount, should such misstatements exist.

B. Acceptable audit risk is a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued.

A CPA firm should decrease acceptable audit risk for audit clients when external users rely heavily on the statements. Why is this statement​ true? A. A large number of financial statement users increases the likelihood that management might have questionable integrity and conduct their business affairs in a manner that results in conflicts with their​ stockholders, regulators, and customers. B. Users who rely heavily upon the financial statements need more reliable information than those who do not place heavy reliance on the financial statements. C. The more external users rely on the​ statements, the less likely a CPA firm will get sued by the client. D. All of the above are reasons the statement is true. Statement c. A CPA firm should decrease acceptable audit risk for audit clients when engagement risk is high. Why is this

B. Users who rely heavily upon the financial statements need more reliable information than those who do not place heavy reliance on the financial statements.

Assume that you are concerned that your client has recorded revenues that did not occur. What audit objective would you assess as having a high risk of material​ misstatement? A. Completeness B. Occurrence C. Classsification D. Timing E. Accuracy

B. Occurrence

Next explain the causes of a decreased planned detection risk. A. A decrease in planned detection risk is caused by the accurate prediction of financial failure for the company. B. A decrease in planned detection risk is caused by the audit being an initial engagement and an average level​ management's integrity. C. A decrease in planned detection risk is caused by a decrease in acceptable audit risk or an increase in control risk or inherent risk. .D. A decrease in planned detection risk is caused by an increase in acceptable audit risk or a decrease in control risk or inherent risk.

C. A decrease in planned detection risk is caused by a decrease in acceptable audit risk or an increase in control risk or inherent risk.

Begin by explaining the causes of an increased planned detection risk. A. An increase in planned detection risk may be caused by the results of previous audits and segments. B. An increase in planned detection risk may be caused by a decrease in acceptable audit risk and an increase in either control risk or industry risk. C. An increase in planned detection risk may be caused by an increase in acceptable audit risk or a decrease in either control risk or inherent risk. D. An increase in planned detection risk may be caused by a decrease in acceptable audit risk or an increase in either control risk or inherent risk.

C. An increase in planned detection risk may be caused by an increase in acceptable audit risk or a decrease in either control risk or inherent risk.

Explain the causes of an increased planned detection risk. A. An increase in planned detection risk may be caused by a decrease in acceptable audit risk and an increase in either control risk or industry risk. B. An increase in planned detection risk may be caused by a decrease in acceptable audit risk or an increase in either control risk or inherent risk. C. An increase in planned detection risk may be caused by an increase in acceptable audit risk or a decrease in either control risk or inherent risk. D. An increase in planned detection risk may be caused by the results of previous audits and segments.

C. An increase in planned detection risk may be caused by an increase in acceptable audit risk or a decrease in either control risk or inherent risk.

Why is it important for the auditor to consider the risk of material misstatement at the overall financial statement​ level? A. It is important for the auditor to consider risks at the overall financial statement level because each of the aspects considered must be explained in the audit report. B. It is important for the auditor to consider risks at the overall financial statement level given those risks may eliminate the need to perform analytical procedures. C. It is important for the auditor to consider risks at the overall financial statement level given those risks may increase the likelihood of risks of material misstatement across a number of accounts and assertions for those accounts. D. It is important for the auditor to consider risks at the overall financial statement level given those risks may decrease the likelihood of risks of material misstatement across a number of accounts and assertions for those accounts.

C. It is important for the auditor to consider risks at the overall financial statement level given those risks may increase the likelihood of risks of material misstatement across a number of accounts and assertions for those accounts.

Explain why there is an inverse relationship between planned detection risk and the amount of evidence an auditor collects for a specific audit objective. A. Planned detection risk is the risk that the auditor or audit firm will suffer harm because of a client​ relationship, even though the audit report rendered for the client was correct. In order to reduce this​ risk, the auditor would increase the amount of evidence they collect for a specific audit objective. For​ example, if the auditor wanted a low level of risk that audit procedures designed to test the existence of inventory fail to detect a material​ misstatement, they would increase the amount of inventory tested​ and/or the number of audit procedures performed. B. Planned detection risk is a measure of the​ auditor's assessment of the susceptibility of an assertion to material misstatement before considering the effectiveness of internal control. In order to reduce this​ risk, the auditor would increase the amount of performance materiality and collection of evidence for specific audit objective. For​ example, if the auditor wanted a low level of risk that audit procedures designed to test the existence of inventory fail to detect a material​ misstatement, they would increase the amount of inventory tested​ and/or the number of audit procedures performed. C. Planned detection risk is the risk that audit evidence for a segment will fail to detect misstatements that could be​ material, should such misstatements exist. In order to reduce this​ risk, the auditor would increase the amount of evidence they collect for a specific audit objective. For​ example, if the auditor wanted a low level of risk that audit procedures designed to test the existence of inventory fail to detect a material​ misstatement, they would increase the amount of inventory tested​ and/or the number of audit procedures performed. D. Planned detection risk is a measure of the​ auditor's assessment of the risk that a material misstatement could occur in an assertion and not be prevented or detected on a timely basis by the​ client's internal controls. In order to reduce this​ risk, the auditor would increase the amount of performance materiality and collection of evidence for specific audit objective. For​ example, if the auditor wanted a low level of risk that audit procedures designed to test the existence of inventory fail to detect a material​ misstatement, they would increase the amount of inventory tested​ and/or the number of audit procedures performed.

C. Planned detection risk is the risk that audit evidence for a segment will fail to detect misstatements that could be​ material, should such misstatements exist. In order to reduce this​ risk, the auditor would increase the amount of evidence they collect for a specific audit objective. For​ example, if the auditor wanted a low level of risk that audit procedures designed to test the existence of inventory fail to detect a material​ misstatement, they would increase the amount of inventory tested​ and/or the number of audit procedures performed

Identify four factors that are associated with higher inherent risk in audits. A. Routine transactions B. Timing of internal control testing C. Related parties D. Results of previous audits E. Nature of the​ client's business F. External use of the financial statements G. Education and experience of the audit staff H. Initial versus repeat engagement

C. Related parties D. Results of previous audits E. Nature of the​ client's business H. Initial versus repeat engagement

Explain the relationship between acceptable audit risk and the legal liability of auditors. A. When the auditor is in a situation where he or she believes that there is a high exposure to legal​ liability, the acceptable audit risk should automatically be set to high. The auditor should then require more extensive​ evident, assign more​ personnel, and/or require more extensive review of audit documentation to allow for minimum acceptable audit risk. B. When the auditor is in a situation where he or she believes that there is a high exposure to legal​ liability, the acceptable audit risk would be set higher than when there is little exposure to liability. Even when the auditor believes that there is little exposure to legal​ liability, there is still a maximum acceptable audit risk that should be met. C. When the auditor is in a situation where he or she believes that there is a high exposure to legal​ liability, the acceptable audit risk would be set lower than when there is little exposure to liability. Even when the auditor believes that there is little exposure to legal​ liability, there is still a minimum acceptable audit risk that should be met. D. When the auditor is in a situation where he or she believes that there is a high exposure to legal​ liability, the acceptable audit risk should automatically be set to low. The auditor should then be able to rely on the​ client's personnel in obtaining records and​ documentations, as well as any schedules the auditor would require to allow for maximum acceptable audit risk.

C. When the auditor is in a situation where he or she believes that there is a high exposure to legal​ liability, the acceptable audit risk would be set lower than when there is little exposure to liability. Even when the auditor believes that there is little exposure to legal​ liability, there is still a minimum acceptable audit risk that should be met.

Provide two examples of factors that might increase the risk of material misstatement at the overall financial statement level. A. a lower cash balance than the prior year B. a high level of asset purchases in the current year C. declining economic conditions D. significant changes in the industry

C. declining economic conditions D. significant changes in the industry

A CPA firm should attempt to achieve the same audit risk for all audit clients when circumstances are similar. Why is this statement​ true? A. Acceptable audit risk is a measure of the​ auditor's assessment of the susceptibility of an assertion to material misstatement before considering the effectiveness of internal control. B. Acceptable audit risk is a measure of the risk that audit evidence for a segment will fail to detect misstatements that could be​ material, should such misstatements exist. C. Acceptable audit risk is a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued. D. Acceptable audit risk is the risk that the auditor or audit firm will suffer harm because of a client​ relationship, even though the audit report rendered for the client was correct.

C. A CPA firm should attempt to use reasonable uniformity from audit to audit when circumstances are similar. The only reasons for having a different audit risk in these circumstances are the lack of consistency within the​ firm, different audit risk preferences for different​ auditors, and difficulties of measuring audit risk.

Auditors have not been successful in measuring the components of the audit risk model. How is it possible to use the model in a meaningful way without a precise way of measuring the​ risk? A. Exact quantification of all components of the audit risk model is not required to use the model in a meaningful way. An understanding of the control risk within the audit risk model and the effect it has on the amount of evidence needed is the only necessary component. This will allow practitioners to use the audit risk model in a meaningful way. B. Exact quantification of all components of the audit risk model is not required to use the model in a meaningful way. An understanding of the relationship of control risk and inherent risk within the audit risk model and the effect it has on the amount of evidence needed is the only necessary component. This will allow practitioners to use the audit risk model in a meaningful way. C. Exact quantification of all components of the audit risk model is not required to use the model in a meaningful way. An understanding of the relationships among model components and the effect that changes in the components have on the amount of evidence needed will allow practitioners to use the audit risk model in a meaningful way. D. Exact quantification of all components of the audit risk model is not required to use the model in a meaningful way. An understanding of the acceptable audit risk within the audit risk model and the effect it has on the amount of evidence needed is the only necessary component. This will allow practitioners to use the audit risk model in a meaningful way.

C. Exact quantification of all components of the audit risk model is not required to use the model in a meaningful way. An understanding of the relationships among model components and the effect that changes in the components have on the amount of evidence needed will allow practitioners to use the audit risk model in a meaningful way.

which audit objective requires the least amount of evidence?

Classification

Match situation to risk factor: The client fails to reconcile bank accounts to recorded cash balances.

Control risk

Match situation to risk factor: The client fails to detect employee theft of inventory from the warehouse because there are no restrictions on warehouse access and the client does not reconcile inventory on hand to recorded amounts on a timely basis.

Control risk

What is its relevance to evidence​ accumulation? A. Acceptable audit risk cannot be determined until sufficient evidence has been accumulated. B. Acceptable audit risk has a complementary relationship to evidence. If acceptable audit risk is​ reduced, planned evidence should decrease. C. Acceptable audit risk has no effect on planned evidence accumulation. D. Acceptable audit risk has an inverse relationship to evidence. If acceptable audit risk is​ reduced, planned evidence should increase.

D. Acceptable audit risk has an inverse relationship to evidence. If acceptable audit risk is​ reduced, planned evidence should increase.

A CPA firm should decrease acceptable audit risk for audit clients when engagement risk is high. Why is this statement​ true? A. A large number of external users placing heavy reliance on financial statements places a greater burden on the auditors. A great social harm can result if a significant misstatement remains undetected in the financial statements. B. The auditor is likely to face greatest legal exposure in situations where external users rely heavily upon the statements. C. A client with questionable integrity might conduct their business affairs in a manner that results in conflicts with their​ stockholders, regulators, and customers. D. All of the above are reasons the statement is true.

D. All of the above are reasons the statement is true.

Next explain the causes of a decreased planned detection risk. A. A decrease in planned detection risk is caused by the accurate prediction of financial failure for the company. B. A decrease in planned detection risk is caused by the audit being an initial engagement and an average level​ management's integrity. C. A decrease in planned detection risk is caused by an increase in acceptable audit risk or a decrease in control risk or inherent risk. D. A decrease in planned detection risk is caused by a decrease in acceptable audit risk or an increase in control risk or inherent risk.

D. A decrease in planned detection risk is caused by a decrease in acceptable audit risk or an increase in control risk or inherent risk.

What constitutes a significant​ risk? A. A transaction that is​ unusual, either due to size or​ nature, and that is infrequent in occurrence. B. A measure of the​ auditor's assessment of the susceptibility of an assertion to material misstatement before considering the effectiveness of internal control C. A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unmodified audit opinion has been issued. D. An identified and assessed risk of material misstatement​ that, in the​ auditor's professional​ judgment, requires special audit consideration.

D. An identified and assessed risk of material misstatement​ that, in the​ auditor's professional​ judgment, requires special audit consideration.

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. 10. During 2016​, litigation filed against WRS in 2003 alleging that WRS discharged pollutants into state waterways was dropped by the state. Loss contingency disclosures that WRS included in prior​ years' financial statements are being removed for the 2016 financial statements.

Decrease

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. Bohrer has audited WRS for five years.

Decrease

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. This was the first year WRS operated at a profit since 2011 because the municipalities received increased federal and state funding for environmental purposes.

Decrease

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. ​WRS's bank has a loan officer who meets regularly with​ WRS's CEO and controller to monitor​ WRS's financial performance.

Decrease

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. During December 2016​, WRS signed a contract to lease disposal equipment from an entity owned by​ Tucker's parents. This related party transaction is not disclosed in​ WRS's notes to its 2016 financial statements.

Increase

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. During 2016​, WRS sold one half of its controlling interest in Sanitation Equipment Leasing Co.​ (SEL) WRS retained a significant interest in SEL.

Increase

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. During 2016​, WRS changed its method of preparing its financial statements from the cash basis to generally accepted accounting principles.

Increase

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. The accounting department has experienced a high rate of turnover of key personnel.

Increase

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. The internal auditor reports to the controller and the controller reports to Tucker.

Increase

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. ​WRS's Board of Directors is controlled by​ Tucker, the majority​ shareholder, who also acts as the chief executive officer.

Increase

Match situation to risk factor: The auditor has identified numerous material misstatements during prior year audit engagements.

Inherent Risk

Match situation to risk factor: The allowance for doubtful accounts is based on significant assumptions made by management.

Inherent risk

Match situation to risk factor: The client engages in several material transactions with entities owned by family members of several of the​ client's senior executives.

Inherent risk

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. ​WRS's employees are paid​ bi-weekly.

No Effect

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. During December 2016​, WRS increased its casualty insurance coverage on several pieces of sophisticated machinery from historical cost to replacement cost.

No effect

Match situation to risk factor: The assigned staff on the audit engagement lack the necessary skills to identify actual errors in an account balance when examining audit evidence accumulated.

Planned detection risk

Match situation to risk factor: The audit program omits several necessary audit procedures.

Planned detection risk

Which audit objective requires the most amount of evidence?

accuracy and realizable value

When inherent risk is increased from medium to​ high, the auditor should (increase, decrease) the audit evidence accumulated to determine whether the expected misstatement actually occurred.

increase

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. An initial public offering of WRS stock is planned in 2017.

increase

indicate whether the item would likely increase audit​ risk, decrease audit​ risk, or have no effect on audit risk. WRS recorded a substantial increase in revenue in the fourth quarter of 2016. Inquiries indicated that WRS initiated a new policy and guaranteed several municipalities that it would refund state and federal funding paid to WRS on behalf of the municipality if it failed a federal or state site inspection in 2017.

increase

At what two levels does the auditor assess the risk of material​ misstatement?

the assertion level for classes of transactions, account balances, and presentation and disclosures. & the overall financial statement level.