Question 1

Engagement risk is effectively the audit firm's business risk.

Accepted Answer

A) True 
 B)False

Question 2

The risk that audit evidence for a segment will fail to detect misstatements exceeding performance materiality levels is:

Accepted Answer

A) audit risk. 
B) control risk. 
C) inherent risk. 
D) planned detection risk. 
A) audit risk. 
B) control risk. 
C) inherent risk. 
D) planned detection risk.

Question 3

Total estimated misstatements include known misstatements and projected misstatements plus a sampling error.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following audit risk components may be assessed in non-quantitative terms?

Accepted Answer

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

Question 5

Qualitative factors can affect an auditor's assessment of materiality.Which of the following statements is true?
I.Misstatements that are otherwise immaterial may be material if they affect earnings trends.
II.Misstatements that are otherwise minor may be material if there are possible consequences arising from contractual obligations.

Accepted Answer

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

Question 6

If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No.2:

Accepted Answer

A) material. 
B) insignificant. 
C) significant. 
D) relevant. 
A) material. 
B) insignificant. 
C) significant. 
D) relevant.

Question 7

The lower the dollar amount of the preliminary judgment the more audit evidence is required.

Accepted Answer

A) True 
 B)False

Question 8

If planned detection risk is reduced, the amount of evidence the auditor accumulates will:

Accepted Answer

A) increase. 
B) decrease. 
C) remain unchanged. 
D) be indeterminate. 
A) increase. 
B) decrease. 
C) remain unchanged. 
D) be indeterminate.

Question 9

Inherent risk and control risk:

Accepted Answer

A) are inversely related to each other. 
B) are inversely related to detection risk. 
C) are directly related to detection risk. 
D) are directly related to audit risk. 
A) are inversely related to each other. 
B) are inversely related to detection risk. 
C) are directly related to detection risk. 
D) are directly related to audit risk.

Question 10

Why do auditors establish a preliminary judgment about materiality?

Accepted Answer

A) To determine the appropriate level of staff to assign to the audit 
B) So that the client can know what records to make available to the auditor 
C) To help plan the appropriate evidence to accumulate 
D) To finalize the control risk assessment 
A) To determine the appropriate level of staff to assign to the audit 
B) So that the client can know what records to make available to the auditor 
C) To help plan the appropriate evidence to accumulate 
D) To finalize the control risk assessment

Question 11

Which of the following statements regarding inherent risk is correct?

Accepted Answer

A) Inherent risk is unaffected by the auditor's experience with client's organization. 
B) Most auditors set a low inherent risk in the first year of an audit and increase it if experience shows that it was incorrect. 
C) Most auditors set a high inherent risk in the first year of an audit and reduce it in subsequent years as they gain more knowledge about the company. 
D) Inherent risk is dependent upon the strengths in client's internal control system. 
A) Inherent risk is unaffected by the auditor's experience with client's organization. 
B) Most auditors set a low inherent risk in the first year of an audit and increase it if experience shows that it was incorrect. 
C) Most auditors set a high inherent risk in the first year of an audit and reduce it in subsequent years as they gain more knowledge about the company. 
D) Inherent risk is dependent upon the strengths in client's internal control system.

Question 12

If an auditor assigns a tolerable misstatement of $1,000 to accounts payable, he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned.

Accepted Answer

A) True 
 B)False

Question 13

In a financial statement audit, inherent risk is evaluated to help an auditor asses which of the following?

Accepted Answer

A) The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee 
B) The risk the internal control system will not detect a material misstatement of a financial statement assertion 
C) The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion 
D) The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls 
A) The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee 
B) The risk the internal control system will not detect a material misstatement of a financial statement assertion 
C) The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion 
D) The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls

Engagement risk is effectively the audit firm's business risk.

The risk that audit evidence for a segment will fail to detect misstatements exceeding performance materiality levels is:

Total estimated misstatements include known misstatements and projected misstatements plus a sampling error.

Which of the following audit risk components may be assessed in non-quantitative terms?

If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No.2:

The lower the dollar amount of the preliminary judgment the more audit evidence is required.

If planned detection risk is reduced, the amount of evidence the auditor accumulates will:

Inherent risk and control risk:

Why do auditors establish a preliminary judgment about materiality?

Which of the following statements regarding inherent risk is correct?

If an auditor assigns a tolerable misstatement of $1,000 to accounts payable, he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned.

In a financial statement audit, inherent risk is evaluated to help an auditor asses which of the following?

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

Filters

Exam 9: Materiality and Risk

Engagement risk is effectively the audit firm's business risk.

The risk that audit evidence for a segment will fail to detect misstatements exceeding performance materiality levels is:

Total estimated misstatements include known misstatements and projected misstatements plus a sampling error.

Which of the following audit risk components may be assessed in non-quantitative terms?

If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No.2:

The lower the dollar amount of the preliminary judgment the more audit evidence is required.

If planned detection risk is reduced, the amount of evidence the auditor accumulates will:

Inherent risk and control risk:

Why do auditors establish a preliminary judgment about materiality?

Which of the following statements regarding inherent risk is correct?

If an auditor assigns a tolerable misstatement of $1,000 to accounts payable, he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned.

In a financial statement audit, inherent risk is evaluated to help an auditor asses which of the following?

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

Filters