Question 1

Auditors respond to risk primarily by: I.changing the extent of testing.
II)changing the types of audit procedures.

Accepted Answer

A) I only 
B) II only 
C) I and II 
D) neither I nor i 
A) I only 
B) II only 
C) I and II 
D) neither I nor i

Question 2

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 3

If the total misstatement of an account is known, a sampling error still needs to be determined.

Accepted Answer

A) True 
 B)False

Question 4

The preliminary judgment about materiality and the amount of audit evidence accumulated are ________ related.

Accepted Answer

A) directly 
B) indirectly 
C) not 
D) inversely 
A) directly 
B) indirectly 
C) not 
D) inversely

Question 5

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 6

Planned detection risk I.determines the amount of substantive evidence the auditor plans to accumulate.
II)is dependent on inherent risk and business risk.

Accepted Answer

A) I only 
B) II only 
C) I and II 
D) None of the above 
A) I only 
B) II only 
C) I and II 
D) None of the above

Question 7

Auditors typically rely on internal controls of their private company clients:

Accepted Answer

A) only as needed to complete the audit and satisfy Sarbanes-Oxley requirements. 
B) only if the controls are determined to be effective. 
C) only if the client asks an auditor to test controls. 
D) only if the controls are sufficient to increase Control Risk to an acceptable level. 
A) only as needed to complete the audit and satisfy Sarbanes-Oxley requirements. 
B) only if the controls are determined to be effective. 
C) only if the client asks an auditor to test controls. 
D) only if the controls are sufficient to increase Control Risk to an acceptable level.

Question 8

The five steps in applying materiality are listed below in random order. 1.Estimate the combined misstatement.
2)Estimate the total misstatement in the segment.
3)Set materiality for the financial statements as a whole.
4)Determine performance materiality.
5)Compare combined estimate with preliminary judgment about materiality.
The first three steps in correct sequence would be:

Accepted Answer

A) 1, 2, 5 
B) 3, 4, 2 
C) 2, 1, 5 
D) 3, 2, 4 
A) 1, 2, 5 
B) 3, 4, 2 
C) 2, 1, 5 
D) 3, 2, 4

Question 9

Based on audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:

Accepted Answer

A) increase materiality levels. 
B) decrease detection risk. 
C) decrease substantive testing. 
D) increase inherent risk. 
A) increase materiality levels. 
B) decrease detection risk. 
C) decrease substantive testing. 
D) increase inherent risk.

Question 10

Amounts involving fraud are usually considered ________ important than unintentional errors of equal dollar amounts.

Accepted Answer

A) less 
B) no less 
C) no more 
D) more 
A) less 
B) no less 
C) no more 
D) more

Question 11

When management has an adequate level of integrity for the auditor to accept the engagement but cannot be regarded as completely honest in all dealings, auditors normally:

Accepted Answer

A) reduce acceptable audit risk and increase inherent risk. 
B) reduce inherent risk and control risk. 
C) increase inherent risk and control risk. 
D) increase acceptable audit risk and reduce inherent risk. 
A) reduce acceptable audit risk and increase inherent risk. 
B) reduce inherent risk and control risk. 
C) increase inherent risk and control risk. 
D) increase acceptable audit risk and reduce inherent risk.

Question 12

Auditors may assess inherent risk and control risk:

Accepted Answer

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

Question 13

There is a direct relationship between acceptable audit risk and planned detection risk.

Accepted Answer

A) True 
 B)False

Question 14

Auditors are ________ to document the known and likely misstatements in the financial statements under audit.

Accepted Answer

A) permitted 
B) required 
C) not allowed 
D) strongly encouraged 
A) permitted 
B) required 
C) not allowed 
D) strongly encouraged

Question 15

As the risk of material misstatement increases, detection risk should:

Accepted Answer

A) medium increase. 
B) decrease. 
C) stay the same. 
D) Is indeterminate. 
A) medium increase. 
B) decrease. 
C) stay the same. 
D) Is indeterminate.

Question 16

Certain types of misstatements are likely to be more important than other types to users, even if the dollar amounts are the same.Which of the following demonstrates this?

Accepted Answer

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

Question 17

The audit risk model that must be used for planning audit procedures and evaluating audit results is:
   = AAR.

Accepted Answer

A) True 
 B)False

Question 18

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 19

The risk of material misstatement refers to:

Accepted Answer

A) control risk and acceptable audit risk. 
B) inherent risk. 
C) the combination of inherent risk and control risk. 
D) inherent risk and audit risk. 
A) control risk and acceptable audit risk. 
B) inherent risk. 
C) the combination of inherent risk and control risk. 
D) inherent risk and audit risk.

Question 20

Most practitioners allocate the preliminary judgment about materiality to both the balance sheet and income statement accounts.

Accepted Answer

A) True 
 B)False

Exam 9: Materiality and Risk

Auditors respond to risk primarily by: I.changing the extent of testing. II)changing the types of audit procedures.

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 the total misstatement of an account is known, a sampling error still needs to be determined.

The preliminary judgment about materiality and the amount of audit evidence accumulated are ________ related.

Inherent risk is often high for an account such as:

Planned detection risk I.determines the amount of substantive evidence the auditor plans to accumulate. II)is dependent on inherent risk and business risk.

Auditors typically rely on internal controls of their private company clients:

Based on audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:

Amounts involving fraud are usually considered ________ important than unintentional errors of equal dollar amounts.

When management has an adequate level of integrity for the auditor to accept the engagement but cannot be regarded as completely honest in all dealings, auditors normally:

Auditors may assess inherent risk and control risk:

There is a direct relationship between acceptable audit risk and planned detection risk.

Auditors are ________ to document the known and likely misstatements in the financial statements under audit.

As the risk of material misstatement increases, detection risk should:

Certain types of misstatements are likely to be more important than other types to users, even if the dollar amounts are the same.Which of the following demonstrates this?

The audit risk model that must be used for planning audit procedures and evaluating audit results is: = AAR.

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

The risk of material misstatement refers to:

Most practitioners allocate the preliminary judgment about materiality to both the balance sheet and income statement accounts.

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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