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      Question

      ________ the audit risks ________ the materiality and

      ________ the audit effort
      A Lower, Higher, Lower Correct Answer Incorrect Answer
      B Lower, Lower, Higher Correct Answer Incorrect Answer
      C Higher, Lower, Lower Correct Answer Incorrect Answer
      D Lower, Higher, Higher Correct Answer Incorrect Answer
      E Higher, Higher, Higher Correct Answer Incorrect Answer

      Solution

      Lower audit risks imply that the auditor is more confident that the financial statements are free from material misstatements. Higher materiality means that the auditor sets a higher threshold for what is considered a material misstatement, which means smaller errors are considered immaterial. Lower audit effort is required when the auditor has lower risks and higher materiality, as they need to perform fewer procedures to achieve their audit objectives.

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