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In addition to modifying the audit evidence, there are two other ways that can be used to change auditors in order to respond to audit risk: 1. The engagement may require more experienced staff. CPA firms should staff all engagements with qualified staff. For low acceptable audit risk clients, special care is appropriate in staffing, and the importance of professional skepticism should be emphasized. 2. The engagement will be reviewed more carefully than usual. CPA firms need to ensure adequate review of the audit files that document the auditors planning, evidence accumulation and conclusions, and other matters in the audit.

Audit Risk for Segments

Neither control risk nor inherent risk is assessed for the overall audit. Instead, both control risk and inherent risk are assessed for each cycle, each account within a cycle, and sometimes even each audit objective for the account. The assessments are likely to vary on the same audit from cycle to cycle, account to account, and objective to objective. Acceptable audit risk is ordinarily assessed by the auditor during planning and held constant for each major cycle and account. Auditor normally use the same acceptable audit risk for each segment because the factors affecting acceptable audit risk are related to the entire audit, not individual accounts. Relating Tolerable Misstatement and Risks to Balance-Related Audit Objectives Although it is common in practice to assess inherent and control risks for each balance related audit objective, it is not common to allocate materiality to those objectives. Auditors are able to effectively associate most risks with different objectives, and it is reasonably easy to determine the relationship between a risk and one or two objectives. For example, obsolescence in inventory is unlikely to affect any objective other than realizable value. It is more difficult to decide how much of the materiality allocated to a given account should in turn be allocated to one or two objectives. Therefore, most auditors do not attempt to do so.

Measurement Limitations One major limitation in the application of the audit risk model is the difficulty of measuring the components of the model. Despite the auditors best efforts in planning, the assessments of acceptable audit risk, inherent risk, and control risk, and therefore planned detection risk, are highly subjective and are only approximations of reality.

Relationship of Tolerable Misstatement and Risks to Planned Evidence

The concepts of materiality and risk in auditing are closely related and inseparable. Risk is a measure of uncertainty, whereas materiality is a measure of magnitude or size. Taken together, they measure the uncertainty of amounts of a given magnitude. Observe that tolerable misstatement does not affect any of the four risks, and the risks have no effect on tolerable misstatement, but together they determine planned evidence. Stated differently, tolerable misstatement is not a part of the audit risk model, but the combination of tolerable misstatement and the audit risk model factors determine planned audit evidence.