Response to the following questions:
1. Define what is meant by inherent risk. Identify four factors that make for high inherent risk in audits.
2. Explain the effect of extensive misstatements found in the prior year's audit on inherent risk, planned detection risk, and planned audit evidence.
3. Define the audit risk model and explain each term in the model. Also describe which two factors of the model when combined reflect the risk of material misstatements.