Question 1

Inherent risk is the susceptibility of an assertion to material misstatement, assuming no related controls.

Accepted Answer

A) True 
 B)False  True

Question 2

Using the audit risk model, identify the relationship between the following elements. For each of the items below, highlight whether the two elements have an inverse relationship, a direct relationship, or no relationship. When considering each item, assume that the other components of the risk model remain constant.

Accepted Answer

The answer of Using the audit risk model, identify the...

Question 3

Using the Audit Risk Model, what are the risks involved in the model and what relationship does each risk in the model have with planned audit evidence (Inverse or Direct)?

Accepted Answer

The answer of Using the Audit Risk Model, what are...

Question 4

When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the:

Accepted Answer

A) extent of tests of controls. 
B) level of detection risk. 
C) extent of substantive tests. 
D) level of inherent risk. 
A) extent of tests of controls. 
B) level of detection risk. 
C) extent of substantive tests. 
D) level of inherent risk.

Question 5

As the acceptable level of detection risk decreases, the assurance directly provided from:

Accepted Answer

A) substantive procedures should increase. 
B) substantive procedures should decrease. 
C) tests of controls should increase. 
D) tests of controls should decrease. 
A) substantive procedures should increase. 
B) substantive procedures should decrease. 
C) tests of controls should increase. 
D) tests of controls should decrease.

Question 6

The achieved (actual)level of audit risk:

Accepted Answer

A) can always be accurately assessed by the auditor. 
B) should be greater than or equal to acceptable audit risk. 
C) can never be known with certainty. 
D) is the same for all audit engagements. 
A) can always be accurately assessed by the auditor. 
B) should be greater than or equal to acceptable audit risk. 
C) can never be known with certainty. 
D) is the same for all audit engagements.

Question 7

Professional judgment must be used when evaluating business risk.

Accepted Answer

A) True 
 B)False

Question 8

Engagement risk can be eliminated by:

Accepted Answer

A) establishing policies for client acceptance and continuance. 
B) lowering audit risk. 
C) lowering materiality. 
D) Engagement risk cannot be eliminated. 
A) establishing policies for client acceptance and continuance. 
B) lowering audit risk. 
C) lowering materiality. 
D) Engagement risk cannot be eliminated.

Question 9

The risk of material misstatement includes which of the following?

Accepted Answer

A) Detection risk 
B) Audit risk 
C) Inherent risk 
D) Nonsampling risk 
A) Detection risk 
B) Audit risk 
C) Inherent risk 
D) Nonsampling risk

Question 10

The risk of material misstatement differs from detection risk in that it:

Accepted Answer

A) arises from the misapplication of auditing procedures. 
B) may be assessed in either quantitative or qualitative terms. 
C) exists independently of the actions of the auditor. 
D) can be changed at the auditor's discretion. 
A) arises from the misapplication of auditing procedures. 
B) may be assessed in either quantitative or qualitative terms. 
C) exists independently of the actions of the auditor. 
D) can be changed at the auditor's discretion.

Question 11

What is the difference between audit risk and engagement risk?

Accepted Answer

Audit risk is the risk that the auditor

Question 12

The auditor can respond to an increased risk of fraud by doing all of the following except:

Accepted Answer

A) evaluating whether the accounting policies selected may be indicative of fraudulent financial reporting through earnings management. 
B) assigning more experienced personnel to the audit. 
C) increasing detection risk. 
D) taking steps to obtain more reliable evidence. 
A) evaluating whether the accounting policies selected may be indicative of fraudulent financial reporting through earnings management. 
B) assigning more experienced personnel to the audit. 
C) increasing detection risk. 
D) taking steps to obtain more reliable evidence.

Question 13

Stacey, the partner in charge of the audit of RIF Enterprises, sets the planned level of audit risk for the audit of accounts payable at 0.06. The risk of material misstatement is assessed at 0.65. What is the detection risk for this audit?

Accepted Answer

Substituting the values into t

Question 14

The primary responsibility for preventing fraud in an organization lies with:

Accepted Answer

A) the audit committee of the board of directors. 
B) the internal audit function. 
C) the external auditor. 
D) the organization's management. 
A) the audit committee of the board of directors. 
B) the internal audit function. 
C) the external auditor. 
D) the organization's management.

Question 15

Engagement risk is the auditor's exposure to loss or injury of his or her reputation from events arising in connection with financial statements audited.

Accepted Answer

A) True 
 B)False

Question 16

In general, material frauds perpetrated by which of the following are most difficult to detect?

Accepted Answer

A) Internal audit function. 
B) Keypunch operator. 
C) Cashier. 
D) Controller. 
A) Internal audit function. 
B) Keypunch operator. 
C) Cashier. 
D) Controller.

Question 17

Engagement risk is:

Accepted Answer

A) the risk of issuing an incorrect audit opinion. 
B) the auditor's risk of loss from events arising in connection with financial statements audited and reported upon. 
C) the overall risk of material misstatement. 
D) the risk of the entity's financial failure. 
A) the risk of issuing an incorrect audit opinion. 
B) the auditor's risk of loss from events arising in connection with financial statements audited and reported upon. 
C) the overall risk of material misstatement. 
D) the risk of the entity's financial failure.

Question 18

The acceptable level of detection risk is inversely related to the:

Accepted Answer

A) extent of the substantive procedures. 
B) risk of misapplying auditing procedures. 
C) overall materiality. 
D) risk of failing to discover material misstatements. 
A) extent of the substantive procedures. 
B) risk of misapplying auditing procedures. 
C) overall materiality. 
D) risk of failing to discover material misstatements.

Question 19

The risk that an auditor will conclude, based on substantive procedures, that a material error does not exist in an account balance when, in fact, such an error does exist is referred to as:

Accepted Answer

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

Question 20

All of the following are inherent risk factors that are pervasive to the financial statements except:

Accepted Answer

A) highly complex significant transactions. 
B) non-routine transactions. 
C) classes of transactions are not processed systematically. 
D) supplies inventory is difficult to count. 
A) highly complex significant transactions. 
B) non-routine transactions. 
C) classes of transactions are not processed systematically. 
D) supplies inventory is difficult to count.

Inherent risk is the susceptibility of an assertion to material misstatement, assuming no related controls.

Using the Audit Risk Model, what are the risks involved in the model and what relationship does each risk in the model have with planned audit evidence (Inverse or Direct)?

When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the:

As the acceptable level of detection risk decreases, the assurance directly provided from:

The achieved (actual)level of audit risk:

Professional judgment must be used when evaluating business risk.

Engagement risk can be eliminated by:

The risk of material misstatement includes which of the following?

The risk of material misstatement differs from detection risk in that it:

What is the difference between audit risk and engagement risk?

The auditor can respond to an increased risk of fraud by doing all of the following except:

Stacey, the partner in charge of the audit of RIF Enterprises, sets the planned level of audit risk for the audit of accounts payable at 0.06. The risk of material misstatement is assessed at 0.65. What is the detection risk for this audit?

The primary responsibility for preventing fraud in an organization lies with:

Engagement risk is the auditor's exposure to loss or injury of his or her reputation from events arising in connection with financial statements audited.

In general, material frauds perpetrated by which of the following are most difficult to detect?

Engagement risk is:

The acceptable level of detection risk is inversely related to the:

The risk that an auditor will conclude, based on substantive procedures, that a material error does not exist in an account balance when, in fact, such an error does exist is referred to as:

All of the following are inherent risk factors that are pervasive to the financial statements except:

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 4: Risk Assessment

Inherent risk is the susceptibility of an assertion to material misstatement, assuming no related controls.

Using the Audit Risk Model, what are the risks involved in the model and what relationship does each risk in the model have with planned audit evidence (Inverse or Direct)?

When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the:

As the acceptable level of detection risk decreases, the assurance directly provided from:

The achieved (actual)level of audit risk:

Professional judgment must be used when evaluating business risk.

Engagement risk can be eliminated by:

The risk of material misstatement includes which of the following?

The risk of material misstatement differs from detection risk in that it:

What is the difference between audit risk and engagement risk?

The auditor can respond to an increased risk of fraud by doing all of the following except:

Stacey, the partner in charge of the audit of RIF Enterprises, sets the planned level of audit risk for the audit of accounts payable at 0.06. The risk of material misstatement is assessed at 0.65. What is the detection risk for this audit?

The primary responsibility for preventing fraud in an organization lies with:

Engagement risk is the auditor's exposure to loss or injury of his or her reputation from events arising in connection with financial statements audited.

In general, material frauds perpetrated by which of the following are most difficult to detect?

Engagement risk is:

The acceptable level of detection risk is inversely related to the:

The risk that an auditor will conclude, based on substantive procedures, that a material error does not exist in an account balance when, in fact, such an error does exist is referred to as:

All of the following are inherent risk factors that are pervasive to the financial statements except:

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters