Question 1

Which of the following is a correct relationship?

Accepted Answer

A) Acceptable audit risk and planned detection risk have an inverse relationship. 
B) Control risk and planned detection risk have a direct relationship. 
C) Planned detection risk and inherent risk have an inverse relationship. 
D) All of the above are correct relationships. 
A) Acceptable audit risk and planned detection risk have an inverse relationship. 
B) Control risk and planned detection risk have a direct relationship. 
C) Planned detection risk and inherent risk have an inverse relationship. 
D) All of the above are correct relationships.

Question 2

In practice,auditors rarely assign numerical probabilities to inherent risk,control risk,or acceptable audit risk.It is more common to assess these risks as high,medium,or low.For each of the four situations below,fill in the blanks for planned detection risk and the amount of evidence you would plan to gather ("planned evidence")using the terms high,medium,or low.

Accepted Answer

1.low,high
2.medium,

Question 3

Which of the following risks are used in the audit risk model?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 4

Which of the following would not increase the risks of material misstatement at the overall financial statement level?

Accepted Answer

A) effective oversight by the board of directors 
B) deficiencies in management's integrity 
C) inadequate accounting systems 
D) all of the above 
A) effective oversight by the board of directors 
B) deficiencies in management's integrity 
C) inadequate accounting systems 
D) all of the above

Question 5

The performance of risk assessment procedures is designed to help the auditor obtain an understanding of the entity.

Accepted Answer

A) True 
 B)False

Question 6

Inherent risk is often high for an account such as

Accepted Answer

A) inventory. 
B) land. 
C) capital stock. 
D) notes payable. 
A) inventory. 
B) land. 
C) capital stock. 
D) notes payable.

Question 7

The risk of fraud should be assessed for the entire audit as well as by cycle,account,and objective.

Accepted Answer

A) True 
 B)False

Question 8

The measurement of the auditor's assessment of the susceptibility of an assertion to material misstatement,before considering the effectiveness of related internal controls is defined as

Accepted Answer

A) audit risk. 
B) inherent risk. 
C) sampling risk. 
D) detection risk. 
A) audit risk. 
B) inherent risk. 
C) sampling risk. 
D) detection risk.

Question 9

When the auditor is attempting to determine the extent to which external users rely on a client's financial statements,they may consider several factors except for

Accepted Answer

A) client size. 
B) concentration of ownership. 
C) nature and amounts of liabilities. 
D) assessment of detection risk. 
A) client size. 
B) concentration of ownership. 
C) nature and amounts of liabilities. 
D) assessment of detection risk.

Question 10

The auditing profession has established guidelines for setting inherent risk.

Accepted Answer

A) True 
 B)False

Question 11

There are several factors that affect engagement risk and,therefore,acceptable audit risk.Discuss three of these factors.

Accepted Answer

Engagement risk is affected by:
•The deg

Question 12

Auditors begin their assessments of inherent risk during audit planning.Which of the following would not help in assessing inherent risk during the planning phase?

Accepted Answer

A) obtaining client's agreement on the engagement letter 
B) obtaining knowledge about the client's business and industry 
C) touring the client's plant and offices 
D) identifying related parties 
A) obtaining client's agreement on the engagement letter 
B) obtaining knowledge about the client's business and industry 
C) touring the client's plant and offices 
D) identifying related parties

Question 13

If an auditor believes the chance of financial failure is high and there is a corresponding increase in business risk for the auditor,acceptable audit risk would likely

Accepted Answer

A) be reduced. 
B) be increased. 
C) remain the same. 
D) be calculated using a computerized statistical package. 
A) be reduced. 
B) be increased. 
C) remain the same. 
D) be calculated using a computerized statistical package.

Question 14

________ risk represents the auditor's assessment of the susceptibility of an assertion to material misstatement,before considering the effectiveness of the client's internal control.

Accepted Answer

A) Material 
B) Account balance 
C) Control 
D) Inherent 
A) Material 
B) Account balance 
C) Control 
D) Inherent

Question 15

As control risk increases,the amount of substantive evidence the auditor plans to accumulate should increase.

Accepted Answer

A) True 
 B)False

Question 16

Auditors frequently refer to the terms audit assurance,overall assurance,and level of assurance instead of

Accepted Answer

A) detection risk. 
B) audit report risk. 
C) acceptable audit risk. 
D) inherent risk. 
A) detection risk. 
B) audit report risk. 
C) acceptable audit risk. 
D) inherent risk.

Question 17

The auditor must perform substantive tests related to assertions deemed to have significant risks.

Accepted Answer

A) True 
 B)False

Question 18

The auditor's responsibility section in an audit report states that "…the standards require that we plan and perform the audit to obtain ________ assurance about whether the financial statements are free of material misstatement." What type of assurance is given?

Accepted Answer

A) immediate 
B) limited 
C) reasonable 
D) absolute 
A) immediate 
B) limited 
C) reasonable 
D) absolute

Question 19

The auditor's risk assessment for fraud should be ongoing throughout the audit.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is not True?

Accepted Answer

A) Inherent risk is inversely related to the amount of audit evidence whereas detection risk is directly related to the amount of audit evidence required. 
B) Inherent risk is directly related to evidence whereas detection risk is inversely related to the amount of audit evidence required. 
C) Inherent risk is the susceptibility of the financial statements to material error,assuming no internal controls. 
D) Inherent risk and control risk are assessed by the auditor and function independently of the financial statement audit. 
A) Inherent risk is inversely related to the amount of audit evidence whereas detection risk is directly related to the amount of audit evidence required. 
B) Inherent risk is directly related to evidence whereas detection risk is inversely related to the amount of audit evidence required. 
C) Inherent risk is the susceptibility of the financial statements to material error,assuming no internal controls. 
D) Inherent risk and control risk are assessed by the auditor and function independently of the financial statement audit.

Exam 9: Materiality and Risk

Which of the following is a correct relationship?

Which of the following risks are used in the audit risk model?

Which of the following would not increase the risks of material misstatement at the overall financial statement level?

The performance of risk assessment procedures is designed to help the auditor obtain an understanding of the entity.

Inherent risk is often high for an account such as

The risk of fraud should be assessed for the entire audit as well as by cycle,account,and objective.

The measurement of the auditor's assessment of the susceptibility of an assertion to material misstatement,before considering the effectiveness of related internal controls is defined as

When the auditor is attempting to determine the extent to which external users rely on a client's financial statements,they may consider several factors except for

The auditing profession has established guidelines for setting inherent risk.

There are several factors that affect engagement risk and,therefore,acceptable audit risk.Discuss three of these factors.

Auditors begin their assessments of inherent risk during audit planning.Which of the following would not help in assessing inherent risk during the planning phase?

If an auditor believes the chance of financial failure is high and there is a corresponding increase in business risk for the auditor,acceptable audit risk would likely

________ risk represents the auditor's assessment of the susceptibility of an assertion to material misstatement,before considering the effectiveness of the client's internal control.

As control risk increases,the amount of substantive evidence the auditor plans to accumulate should increase.

Auditors frequently refer to the terms audit assurance,overall assurance,and level of assurance instead of

The auditor must perform substantive tests related to assertions deemed to have significant risks.

The auditor's responsibility section in an audit report states that "…the standards require that we plan and perform the audit to obtain ________ assurance about whether the financial statements are free of material misstatement." What type of assurance is given?

The auditor's risk assessment for fraud should be ongoing throughout the audit.

Which of the following statements is not True?

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls,

Completing the Tests in the Acquisition and Payment Cycle:

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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