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Comment by Tired Pup on Friday

@Gladys Hey girl! So this is what I'd do for that problem...

Remember the formula for Audit Risk is Inherent Risk * Control Risk * Detection Risk, or in short-hand: AR = IR * CR * DR... right?

In your problem, inherent risk is believed to be 80%, or 0.80... Control Risk is believed to be 20%, or 0.20... and the auditors wish to limit Audit Risk to 4%, or 0.04...

Now, the question is: What is the maximum detection risk the auditors should specify in their substantive tests of details of accounts receivable?

Using the formula for Audit Risk (as stated previously), we can derive the formula for determining Detection Risk (using basic algebra), right?

So, after doing that we end up with this formula:

DR = AR / (IR * CR), and now you just plug in the given values...

DR = 0.04 / (0.80 * 0.20)... which gives you DR = 0.25... or 25%. I think that is how you do it... Is that the answer in the solution? 

Hope this helps! Let me know. :)

 

Comment by Gladys Pagan on May 11, 2013 at 2:05pm

Hi everyone, hope your studies are going great. I am schedule to take aud May 24. i am not pushing in back anymore. after the exam i am going to WASHINGTON DC for memorial weekend with my husband. so looking forward to it. any way i have a question i neex help with if anyone can explain. this question is from cpareviewfor free.

The auditors of Epps Electronics wish to limit the audit risk of material misstatement in the test of accounts receivable to 4 percent. They believe that there is an inherent risk of a material misstatement of 80 percent. Based on their analysis, they also believe there is a 20 percent risk that a material misstatement could have bypassed the client's system of internal control. What is the maximum detection risk the auditors should specify in their substantive tests of details of accounts receivable? 

thxs

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Comment by trinicpa on May 3, 2013 at 12:34pm

Thanks for your advice Gladys...I am really wondering if i'm cutting it too close.  I am scared to look at my REG score because if I don't pass I might really need to take a break from studying AUD.  I haven't studied much this week because I've been trying to get through month end so that most of my work will be done when I leave and my Manager will have very little to do. I'll decide by this weekend on what i'll be doing.

Comment by Gladys Pagan on May 1, 2013 at 5:19pm

Trinicpa- I have studied while I was on vacation. Tips that helped me keep focused and study. Your on vacation be realistic how many hours you r going to study. If you have ur vacation days planned out already, work with that. When I was studying on the cruise I looked what we had planned for that day the night before. For example, going on a boat ride at 9am. I would wake up two hours earlier and study. I then had the rest if the day to myself. I carried my flashcards with me so if we were just on the deck hanging I would review my flashcards then have my husband test me. CARRY WITH YOUR FLASHCARDS EVERY WHERE YOU GO. :-)
☆KEY THING FIRST DETERMINE HOW MANY HOURS YOU WANT TO STUDY A DAY. HOPE THIS WAS HELPFUL.

Comment by trinicpa on May 1, 2013 at 4:44pm

Started studying for AUD on Sunday.  I'm using Becker.  I am really trying to stay on schedule as this is the last chance to take it before the changes.  I will be studying while on vacay in the caribbean...i'm dedicated to trying to pass this exam. I'm hoping that this pays off else i'm gonna be really upset.  Never studied on a vacation ever!

Comment by Jeannie Vadillo on May 1, 2013 at 3:56pm

Started studying for AUD since Monday. Using the Roger CPA Review course. I haven't received my materials yet but started viewing the lectures online. Fingers crossed my materials should arrive tomorrow.

 

Comment by Tina Hutton on May 1, 2013 at 8:01am

Thanks Connie for sending the website info.

 

 

Comment by Connie Cox Christopher on May 1, 2013 at 7:57am

@ Allie and R. Pavon - Thanks! She is much better now. Almost 100% again.

@ Tina Hutton - I think it's www.ais-cpa.com/

Comment by R. Pavon on May 1, 2013 at 7:46am

@Connie,

Hope your child gets better soon! I haven't been here in awhile because of the work load. Was overseas on business and came back last week. Already very upset with myself as I had to reschedule my test to July 1.

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