Explanation: Likelihood, when combined with severity, contributes to a comprehensive risk assessment. Both factors are considered to determine the overall risk level associated with identified findings, providing a nuanced understanding of potential risks.

Explanation: A high-severity finding with a low likelihood may result in a medium risk level. While the potential impact is significant, the lower likelihood tempers the overall risk assessment.

Explanation: Immaterial findings require the same level of attention as material findings because they contribute to the overall understanding of the audit’s effectiveness. Addressing both material and immaterial findings ensures a comprehensive approach to continuous improvement.

Explanation: A high-risk finding indicates that both the severity and likelihood are high, signifying a significant potential impact and a higher probability of occurrence.

Explanation: The primary purpose of categorizing findings by risk level is to guide the prioritization of recommendations and corrective actions. This systematic approach ensures that the most critical issues are addressed first, enhancing the effectiveness of remediation efforts.

Explanation: A finding with low severity and low likelihood is typically assigned a low risk level. The potential impact is minimal, and the probability of occurrence is low, resulting in an overall lower risk assessment.

Explanation: Materiality in audit findings is based on the significance of the issues in relation to the audit objective. It ensures that recommendations and corrective actions focus on matters that are essential to the overall purpose of the audit.

Explanation: A high likelihood and low severity indicate a medium level of risk. While there is a higher probability of occurrence, the potential impact is moderate, resulting in an overall medium risk assessment.

Explanation: The emphasis in recommendations should be on addressing root causes to mitigate overall risk. This approach contributes to effective risk management and ensures that corrective actions focus on preventing the recurrence of similar issues.

Explanation: A medium-risk finding typically indicates medium severity and high likelihood. While the potential impact is moderate, the higher likelihood contributes to an overall medium risk assessment.

Explanation: Risk assessment is integral to the audit process as it guides the prioritization of findings and corrective actions. It ensures a systematic approach to addressing issues, focusing on those with the highest potential impact and likelihood.

Explanation: Both severity and likelihood are essential in providing a comprehensive risk assessment. Combining these factors offers a nuanced understanding of the potential impact and probability of occurrence, resulting in a more accurate overall risk level.

Explanation: A high likelihood and high severity indicate a significant potential impact with a higher probability of occurrence, resulting in an overall high-risk assessment.

Explanation: Prioritizing based on the level of risk and impact ensures that the most critical issues are addressed first, contributing to an efficient and targeted approach to corrective actions and recommendations.

Explanation: Materiality guides the prioritization of findings by focusing on the significance of issues in relation to the audit objective. It ensures that recommendations and corrective actions address matters essential to the overall purpose of the audit.

Explanation: High severity and low likelihood result in a medium risk level. While the potential impact is significant, the lower probability of occurrence balances the overall risk assessment.

Explanation: Distinguishing between material and immaterial findings ensures that both contribute to overall improvement. Addressing issues of varying significance enhances the effectiveness of the audit process and promotes a culture of continuous improvement.

Explanation: Low severity and high likelihood indicate a moderate level of risk. While the potential impact is low, the higher probability of occurrence results in an overall medium risk assessment.

Explanation: Likelihood, when combined with severity, provides a comprehensive understanding of the overall risk level. Both factors contribute to a nuanced and accurate risk assessment.

Explanation: A low-severity finding with a high likelihood typically results in a medium risk level. While the potential impact is minimal, the higher probability of occurrence contributes to a moderate overall risk assessment.

Explanation: The primary goal of assessing the level of risk is to guide the prioritization of recommendations and corrective actions. This systematic approach ensures that the most critical issues are addressed first, contributing to the overall effectiveness of remediation efforts.

Explanation: Significance is a factor in determining materiality, guiding the prioritization of findings based on their importance to the audit objective. It ensures a focused approach to addressing issues that have a significant impact on the overall purpose of the audit.

Explanation: A high-risk finding indicates both high severity and high likelihood. This combination signifies a significant potential impact with a higher probability of occurrence.

Explanation: Considering the potential impact is crucial in risk assessment as it provides insights into the severity of findings. It helps in understanding the significance of issues and guides the overall risk determination.

Explanation: A finding with high severity and low likelihood typically results in a medium risk level. While the potential impact is significant, the lower probability of occurrence balances the overall risk assessment.

Explanation: Prioritizing based on the level of risk and impact ensures that the most critical issues are addressed first, contributing to an efficient and targeted approach to corrective actions and recommendations. This systematic approach enhances the overall effectiveness of the audit process.

Explanation: The auditor should develop a follow-up plan, monitor the progress of recommendations, and report on their status. This ensures accountability, encourages corrective actions, and strengthens the effectiveness of the audit process.

Explanation: Ms. Garcia should immediately document the testing methodology to maintain accuracy and completeness in the audit work papers. This ensures that the audit process is well-documented and aligns with best practices.

Explanation: The primary purpose of documenting the testing methodology is to provide a clear understanding of the audit process. This documentation enhances transparency, aids in peer reviews, and supports the overall effectiveness of the audit.

Explanation: A key consideration for effective follow-up is to monitor the progress and report on the status of recommendations. This ensures accountability, transparency, and a systematic approach to addressing identified issues.