Exam 9: Audit Risk, Including the Risk of Fraud

The assessment of inherent risk requires consideration of matters that have a pervasive effect on assertions for all or many accounts and matters that may pertain only to assertions for specific accounts. Which of the following is an example of a "specific account" matter?

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(Multiple Choice)

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Question 1

Correct Answer:

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The auditor has chosen the preliminary strategy of primarily substantive testing. Which of the following is not a validly specified component of this strategy?

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(Multiple Choice)

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Question 2

Correct Answer:

Verified

For each one of the following risk factors relating to misstatements arising from fraudulent reporting, identify the appropriate category. 1.Inability to generate cash flows from operations while reporting earnings and earnings growth. 2.High degree of competition or market saturation, accompanied by declining margins. 3.High turnover of senior management, counsel, or board members. 4.Difficulty in determining the organization or individual(s) that control(s) the entity. 5.Strained relationship between management and the current or predecessor auditor. 6.Declining industry with increasing business failures and significant declines in customer demand.

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(Essay)

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Question 3

Correct Answer:

Verified

1.Operating characteristics and financial stability.
2.Industry conditions that involve the economic and regulatory environment in which the entity operates.
3.Management's characteristics and influence over the control environment.
4.Operating characteristics and financial stability.
5.Management's characteristics and influence over the control environment.
6.Industry conditions that involve the economic and regulatory environment in which the entity operates.

The risk that the auditor will not detect a material misstatement that exists in an assertion is:

(Multiple Choice)

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Question 4

Inherent risk cannot be greater for some assertions than for others.

(True/False)

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Question 5

The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated is:

(Multiple Choice)

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Question 6

The auditor has chosen the preliminary strategy of lower assessed control risk. Which of the following is not a validly specified component of this strategy?

(Multiple Choice)

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Question 7

A.Under a lower assessed level of control risk approach, what audit strategy components does the auditor specify? B.Under a primarily substantive approach, what audit strategy components does the auditor specify?

(Essay)

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Question 8

The auditor has some control over:

(Multiple Choice)

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Question 9

The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity's internal controls is:

(Multiple Choice)

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Question 10

match the audit strategy with the audit strategy components listed below. (Items may be used more than once.)

Plan few, if any, tests of controls.

A Primarily Substantive Approach

Plan to obtain a minimum understanding of relevant portions of internal controls.

A Lower Assessed Level of Control Risk Approach

Obtain extensive knowledge of the client’s business processes relevant to the assertion.

A Response to Lower Inherent Risk Approach

Correct Answer:

Verified

Plan few, if any, tests of controls.

Plan to obtain a minimum understanding of relevant portions of internal controls.

Obtain extensive knowledge of the client’s business processes relevant to the assertion.

(Matching)

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Question 11

The more certain the auditor wants to be of expressing the correct opinion, the lower will be the acceptable audit risk.

(True/False)

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Question 12

Auditors are required to perform risk assessment procedures in every audit to assess the risk of fraud due to both misappropriation and fraudulent financial reporting.

(True/False)

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Question 13

Which of the following risk factors is an example of an assertion specific inherent risk factor?

(Multiple Choice)

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Question 14

If inherent risk is assessed as low, control risk is assessed as low and analytical procedures risk is very low, the acceptable levels of test of details risk would be:

(Multiple Choice)

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Question 15

An inaccurate version of the audit risk model would imply that:

(Multiple Choice)

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Question 16

The auditor has some control over:

(Multiple Choice)

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Question 17

A risk components matrix or its equivalent is necessary whenever the auditor uses:

(Multiple Choice)

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Question 18

For which of the following accounts is the primarily substantive testing strategy least likely?

(Multiple Choice)

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Question 19

The actual level of control risk, but not inherent risk, is directly controllable by the auditor.

(True/False)

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Question 20

Showing 1 - 20 of 44

The assessment of inherent risk requires consideration of matters that have a pervasive effect on assertions for all or many accounts and matters that may pertain only to assertions for specific accounts. Which of the following is an example of a "specific account" matter?

The auditor has chosen the preliminary strategy of primarily substantive testing. Which of the following is not a validly specified component of this strategy?

The risk that the auditor will not detect a material misstatement that exists in an assertion is:

Inherent risk cannot be greater for some assertions than for others.

The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated is:

The auditor has chosen the preliminary strategy of lower assessed control risk. Which of the following is not a validly specified component of this strategy?

A.Under a lower assessed level of control risk approach, what audit strategy components does the auditor specify? B.Under a primarily substantive approach, what audit strategy components does the auditor specify?

The auditor has some control over:

The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity's internal controls is:

The more certain the auditor wants to be of expressing the correct opinion, the lower will be the acceptable audit risk.

Auditors are required to perform risk assessment procedures in every audit to assess the risk of fraud due to both misappropriation and fraudulent financial reporting.

Which of the following risk factors is an example of an assertion specific inherent risk factor?

If inherent risk is assessed as low, control risk is assessed as low and analytical procedures risk is very low, the acceptable levels of test of details risk would be:

An inaccurate version of the audit risk model would imply that:

The auditor has some control over:

A risk components matrix or its equivalent is necessary whenever the auditor uses:

For which of the following accounts is the primarily substantive testing strategy least likely?

The actual level of control risk, but not inherent risk, is directly controllable by the auditor.

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Auditors Legal Liability

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Accepting the Engagement and

Materiality Decisions and Performing Analytical Procedures

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Procedures in Response to Assessed Risks: Substantive Tests

Audit Sampling in Substantive Tests

Auditing the Revenue Cycle

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

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