Question 1

As the acceptable level of detection risk increases, an auditor may change the:

Accepted Answer

A) timing of substantive tests by performing them at an interim date rather than year end. 
B) timing of the tests on controls by performing them throughout the year rather than at one time. 
C) assess the level of inherent risk to a lower amount. 
D) increase the sample size to achieve a more effective test. 
A) timing of substantive tests by performing them at an interim date rather than year end. 
B) timing of the tests on controls by performing them throughout the year rather than at one time. 
C) assess the level of inherent risk to a lower amount. 
D) increase the sample size to achieve a more effective test. A

Question 2

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. D

Question 3

Which of the following is a correct statement?

Accepted Answer

A) The audit risk model helps in evaluating results. 
B) Special care must be exercised when the auditor decides on the basis of accumulated evidence that the original assessment of control risk was understated. 
C) The auditor violates due care if he knows that the original assessment of audit risk is inappropriate and he fails to change it. 
D) Performance materiality is part of the audit risk model. 
A) The audit risk model helps in evaluating results. 
B) Special care must be exercised when the auditor decides on the basis of accumulated evidence that the original assessment of control risk was understated. 
C) The auditor violates due care if he knows that the original assessment of audit risk is inappropriate and he fails to change it. 
D) Performance materiality is part of the audit risk model. C

Question 4

Auditors generally allocate the preliminary judgment about materiality to the:

Accepted Answer

A) balance sheet only. 
B) income statement only. 
C) income statement and balance sheet. 
D) statement of cash flows. 
A) balance sheet only. 
B) income statement only. 
C) income statement and balance sheet. 
D) statement of cash flows.

Question 5

Preliminary judgments about materiality are often changed during the course of the engagement.

Accepted Answer

A) True 
 B)False

Question 6

Match between columns
                        Premises: This term is synonymous with acceptable audit risk.
A measure of the auditor's assessment of the likelihood that misstatements exceeding a performance materiality in a segment will not be prevented or detected by the client's internal controls.
A measure of how much risk the auditor is willing to take that the financial statements may be materially misstated after the audit is completed and an unqualified audit opinion has been issued.
The maximum amount by which the auditor believes that the statements could be misstated and still not affect the decisions of reasonable users.
A measure of the auditor's assessment of the likelihood that there are material misstatements before considering the effectiveness of internal control.
The materiality allocated to any given account balance.
The magnitude of an omission or misstatement of accounting information that makes it probable that the judgment of a reasonable person would have been changed.
A measure of the risk that audit evidence for a segment will fail to detect misstatements exceeding the performance materiality amount should such misstatements exist.

Accepted Answer

The Answer of Acceptable audit risk and Preliminary judgment about is...

Question 7

Net income before tax is the normal base used to determine materiality in a not-for-profit company.

Accepted Answer

A) True 
 B)False

Question 8

Describe the audit risk model and each of its components.

Accepted Answer

The planning form of the audit risk mode

Question 9

Discuss each of the five steps in applying materiality in an audit, and identify the audit phase(s)in which each step is performed.List these steps in the order in which they occur.

Accepted Answer

Step 1.Set preliminary judgment about ma

Question 10

When allocating materiality, most practitioners choose to allocate to:

Accepted Answer

A) the income statement accounts because they are more important. 
B) the balance sheet accounts because most audits focus on the balance sheet. 
C) both balance sheet and income statement accounts because there could be errors on either. 
D) all of the financial statements because it is required by GAAS. 
A) the income statement accounts because they are more important. 
B) the balance sheet accounts because most audits focus on the balance sheet. 
C) both balance sheet and income statement accounts because there could be errors on either. 
D) all of the financial statements because it is required by GAAS.

Question 11

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

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 12

The measurement of the auditor's assessment of the likelihood that there are material misstatements due to error or fraud in a segment before considering the effectiveness of 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 13

The most important element of the audit risk model is control risk.

Accepted Answer

A) True 
 B)False

Question 14

Auditors are responsible for determining whether financial statements are materially misstated, so upon discovering a material misstatement they must bring it to the attention of:

Accepted Answer

A) regulators. 
B) the audit firm's managing partner. 
C) the client shareholders. 
D) the client. 
A) regulators. 
B) the audit firm's managing partner. 
C) the client shareholders. 
D) the client.

Question 15

In applying the audit risk model, auditors are concerned about overstatements, not understatements.

Accepted Answer

A) True 
 B)False

Question 16

Audit standards require the auditor to consider the combined amount of misstatement early in the audit.This is known as preliminary materiality judgment.List and discuss the three main factors that affect an auditor's preliminary judgment about materiality.

Accepted Answer

The three main factors that affect an au

Question 17

An acceptable audit risk assessment of low indicates a risky client requiring more extensive evidence, assignment of more experienced personnel, and/or a more extensive review of audit files.

Accepted Answer

A) True 
 B)False

Question 18

CPA firms can establish policy guidelines to help their auditors determine materiality.

Accepted Answer

A) True 
 B)False

Question 19

Audit standards require the auditor to consider materiality early in the audit.Which statement(s)regarding preliminary materiality are true?
I.Preliminary materiality may change during the engagement.
II.Preliminary materiality is the maximum amount by which the auditor believes the financials could be misstated and still not affect the decisions of reasonable users.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither are true 
A) I only 
B) II only 
C) both I and II 
D) neither are true

Question 20

Lewis Corporation has a few large accounts receivable that total one million dollars whereas Clark Corporation has many small accounts receivable that total one million dollars.Misstatement in any one account is more significant for Lewis corporation because of the concept of:

Accepted Answer

A) materiality. 
B) audit risk. 
C) reasonable assurance. 
D) comparative analysis. 
A) materiality. 
B) audit risk. 
C) reasonable assurance. 
D) comparative analysis.

Exam 9: Materiality and Risk

As the acceptable level of detection risk increases, an auditor may change the:

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:

Which of the following is a correct statement?

Auditors generally allocate the preliminary judgment about materiality to the:

Preliminary judgments about materiality are often changed during the course of the engagement.

Net income before tax is the normal base used to determine materiality in a not-for-profit company.

Describe the audit risk model and each of its components.

Discuss each of the five steps in applying materiality in an audit, and identify the audit phase(s)in which each step is performed.List these steps in the order in which they occur.

When allocating materiality, most practitioners choose to allocate to:

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

The measurement of the auditor's assessment of the likelihood that there are material misstatements due to error or fraud in a segment before considering the effectiveness of internal controls is defined as:

The most important element of the audit risk model is control risk.

Auditors are responsible for determining whether financial statements are materially misstated, so upon discovering a material misstatement they must bring it to the attention of:

In applying the audit risk model, auditors are concerned about overstatements, not understatements.

Audit standards require the auditor to consider the combined amount of misstatement early in the audit.This is known as preliminary materiality judgment.List and discuss the three main factors that affect an auditor's preliminary judgment about materiality.

An acceptable audit risk assessment of low indicates a risky client requiring more extensive evidence, assignment of more experienced personnel, and/or a more extensive review of audit files.

CPA firms can establish policy guidelines to help their auditors determine materiality.

Lewis Corporation has a few large accounts receivable that total one million dollars whereas Clark Corporation has many small accounts receivable that total one million dollars.Misstatement in any one account is more significant for Lewis corporation because of the concept of:

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

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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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