Brown, CPA, is evaluating the risk of material misstatement (RMM) on an engagement. For each of the following, identify the risk component most directly affected matching the risk component from the list provided. Also indicate what effect the situation described would have on this risk by matching the appropriate option from the list provided.
Provided:
A. Control Risk/Decrease Risk
B. Inherent Risk/Increase Risk
C. Detection Risk/Decrease Risk
D. Control Risk/Increase Risk
E. Inherent Risk/Decrease Risk
F. Detection Risk/Increase Risk
Questions:
1. The entity's purchasing agent is required to obtain approval from senior management for purchases in excess of $2,000.
2. A good portion of the entity's fixed asset base consists of capitalized leasehold items.
3. Brown plans to perform extensive tests of details surrounding the payroll function.
4. The entity keeps a large quantity of cash on hand.
5. Brown plans to perform all of tis testing relating to cash at year-end.
6. The entity's computer applications are not protected by password controls.
7. Employees report the hours worked each week without supervisory oversight.
8. Brown will obtain evidence primarily from external sources in testing the entity's receivables.
9. The entity's financial statements do not require use of significant estimates.
10. Brown plans to perform only limited tests of details related to the purchasing function.