Answer (C) is correct . SAS 47 (AU 312), Audit Risk and Materiality in Conducting an Audit , defines audit risk as the risk that the external auditor may unknowingly fail to modify his/her opinion on financial statements that are materially misstated. Its elements are control risk, inherent risk, and detection risk. For internal auditing, the overall audit risk extends not only to financial statements but also to unwitting failure to uncover material errors or weaknesses in the operations audited. There may be several different reasons for the failure, and these may be in risk categories such as sampling risk, detection risk, or control risk.
Answer (A) is incorrect because The risk that an auditor might not select documents that are in error as part of the examination is an aspect of sampling risk.
Answer (B) is incorrect because The risk that an auditor may not be able to properly evaluate an activity because of its poor internal accounting controls is an aspect of control risk.
Answer (D) is incorrect because Lack of competency relates to control risk. It is the failure of a control (internal auditing).
|
