Question 1

Which of the following is not a misstatement of the financial statements?

Accepted Answer

A) The entity uses different inventory accounting methods for internal and external reporting. 
B) A departure from GAAP. 
C) The footnote for pensions is omitted. 
D) A clerk incorrectly based the allowance for doubtful accounts on 31% of sales as opposed to 13% of sales as determined by the controller. 
A) The entity uses different inventory accounting methods for internal and external reporting. 
B) A departure from GAAP. 
C) The footnote for pensions is omitted. 
D) A clerk incorrectly based the allowance for doubtful accounts on 31% of sales as opposed to 13% of sales as determined by the controller.

Question 2

In one sentence each, define misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets.

Accepted Answer

Misstatements arising from fraudulent fi

Question 3

An auditor learns that a client's employee in control of inventory gets divorced and is responsible for paying a large amount of child support. All of the following for the audit of inventory likely are true except:

Accepted Answer

A) fraud risk increases. 
B) the risk of misappropriation of assets increases. 
C) risk of material misstatement increases. 
D) detection risk increases. 
A) fraud risk increases. 
B) the risk of misappropriation of assets increases. 
C) risk of material misstatement increases. 
D) detection risk increases.

Question 4

The components of the audit risk model include inherent risk, control risk, and detection risk.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following circumstances most likely would cause an auditor to believe that material misstatements may exist in an entity's financial statements?

Accepted Answer

A) Accounts receivable confirmation requests yield significantly fewer responses than expected. 
B) Audit trails of computer-generated transactions exist only for a short time. 
C) The chief financial officer does not sign the management representation letter until the last day of the auditor's fieldwork. 
D) Management consults with other accountants about significant accounting matters. 
A) Accounts receivable confirmation requests yield significantly fewer responses than expected. 
B) Audit trails of computer-generated transactions exist only for a short time. 
C) The chief financial officer does not sign the management representation letter until the last day of the auditor's fieldwork. 
D) Management consults with other accountants about significant accounting matters.

Question 6

Which of the following is correct concerning required auditor communications about fraud?

Accepted Answer

A) Fraud that involves senior management should be reported directly by the auditor to the audit committee regardless of the amount involved. 
B) Fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission. 
C) Any requirement to disclose fraud outside the entity is the responsibility of management and not that of the auditor. 
D) The professional standards provide no requirements related to the communication of fraud, but the auditor should use professional judgment in determining communication responsibilities. 
A) Fraud that involves senior management should be reported directly by the auditor to the audit committee regardless of the amount involved. 
B) Fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission. 
C) Any requirement to disclose fraud outside the entity is the responsibility of management and not that of the auditor. 
D) The professional standards provide no requirements related to the communication of fraud, but the auditor should use professional judgment in determining communication responsibilities.

Question 7

Which of the following audit risk components may be assessed in qualitative terms?

Accepted Answer

A) Risk of material misstatement. 
B) Detection risk. 
C) Neither risk of material misstatement nor detection risk. 
D) Both risk of material misstatement and detection risk. 
A) Risk of material misstatement. 
B) Detection risk. 
C) Neither risk of material misstatement nor detection risk. 
D) Both risk of material misstatement and detection risk.

Question 8

Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements?

Accepted Answer

A) Turnover of senior accounting personnel is low. 
B) Insiders recently purchased additional shares of the entity's stock. 
C) Management places substantial emphasis on meeting earnings projections. 
D) The rate of change in the entity's industry is slow. 
A) Turnover of senior accounting personnel is low. 
B) Insiders recently purchased additional shares of the entity's stock. 
C) Management places substantial emphasis on meeting earnings projections. 
D) The rate of change in the entity's industry is slow.

Question 9

During the course of the audit of FF Financial, you find that some accounting entries have been altered. You believe this may be the result of management fraud and you have determined that the effect of this could be material to the financial statements. What steps should you take in response to the accounting entries and your concern about management fraud?

Accepted Answer

In this situation, the auditor should at

Question 10

DATRIX, Inc., a Fortune 500 company, has been experiencing poor performance. Industry analysts have been issuing negative reports and the company's stock price has been steadily declining. As an auditor, what would concern you about the audit engagement of DATRIX, Inc.

Accepted Answer

An auditor should be concerned because o

Question 11

The objectives of the engagement partner's communication with the audit team include:

Accepted Answer

A) maintaining an adversarial atmosphere between the auditor and management. 
B) complying with SEC rules. 
C) complying with FASB rules. 
D) emphasizing the importance of professional skepticism. 
A) maintaining an adversarial atmosphere between the auditor and management. 
B) complying with SEC rules. 
C) complying with FASB rules. 
D) emphasizing the importance of professional skepticism.

Question 12

Inherent risk includes sampling risk and detection risk.

Accepted Answer

A) True 
 B)False

Question 13

You are teaching a class of new hires at your international accounting firm. Explain the audit risk model using a mathematical formula.
AR = RMM × DR
AR = Audit risk
RMM = Risk of material misstatement
DR = Detection risk

Accepted Answer

Audit risk consists of:
1. The risk that

Question 14

Your classmate asserts, "Accountants shouldn't need to take business courses besides accounting, because they are only interested in the financial statements of a company." Defend or refute this statement.

Accepted Answer

The classmate is misguided. Auditors nee

Question 15

When an entity moves into a significant new line of business, all of the following increase except:

Accepted Answer

A) client risk. 
B) acceptable audit risk. 
C) risk of material misstatement. 
D) entity business risk. 
A) client risk. 
B) acceptable audit risk. 
C) risk of material misstatement. 
D) entity business risk.

Question 16

When assessing the risk of material misstatement, auditors evaluate the reasonableness of an entity's accounting estimates. An auditor normally would be concerned about assumptions that are:

Accepted Answer

A) susceptible to bias. 
B) consistent with prior periods. 
C) insensitive to variations. 
D) similar to industry guidelines. 
A) susceptible to bias. 
B) consistent with prior periods. 
C) insensitive to variations. 
D) similar to industry guidelines.

Question 17

Which of the following is a source of detection risk?

Accepted Answer

A) Unstable business environment. 
B) Poor client controls. 
C) A nonrepresentative sample. 
D) Inherent risk assessed too high. 
A) Unstable business environment. 
B) Poor client controls. 
C) A nonrepresentative sample. 
D) Inherent risk assessed too high.

Question 18

Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?

Accepted Answer

A) Inability to generate cash flows from operations while reporting substantial earnings growth. 
B) Management's lack of interest in increasing the entity's earnings trend. 
C) Large amounts of liquid assets that are easily converted into cash. 
D) Inability to borrow necessary capital without granting debt covenants. 
A) Inability to generate cash flows from operations while reporting substantial earnings growth. 
B) Management's lack of interest in increasing the entity's earnings trend. 
C) Large amounts of liquid assets that are easily converted into cash. 
D) Inability to borrow necessary capital without granting debt covenants.

Question 19

Under Auditing Standards, which of the following would be classified as an error?

Accepted Answer

A) Misappropriation of assets for the benefit of management. 
B) Misinterpretation by management of facts that existed when the financial statements were prepared. 
C) Preparation of records by employees to cover a fraudulent scheme. 
D) Intentional omission of the recording of a transaction to benefit a third party. 
A) Misappropriation of assets for the benefit of management. 
B) Misinterpretation by management of facts that existed when the financial statements were prepared. 
C) Preparation of records by employees to cover a fraudulent scheme. 
D) Intentional omission of the recording of a transaction to benefit a third party.

Question 20

Which of the following procedures would not be used to obtain an understanding of the entity and its environment?

Accepted Answer

A) Observe entity operations. 
B) Reperform entity processes. 
C) Verify proper valuation of inventory subject to technological obsolescence. 
D) Review prior year's audit documentation. 
A) Observe entity operations. 
B) Reperform entity processes. 
C) Verify proper valuation of inventory subject to technological obsolescence. 
D) Review prior year's audit documentation.

Which of the following is not a misstatement of the financial statements?

In one sentence each, define misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets.

An auditor learns that a client's employee in control of inventory gets divorced and is responsible for paying a large amount of child support. All of the following for the audit of inventory likely are true except:

The components of the audit risk model include inherent risk, control risk, and detection risk.

Which of the following circumstances most likely would cause an auditor to believe that material misstatements may exist in an entity's financial statements?

Which of the following is correct concerning required auditor communications about fraud?

Which of the following audit risk components may be assessed in qualitative terms?

Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements?

DATRIX, Inc., a Fortune 500 company, has been experiencing poor performance. Industry analysts have been issuing negative reports and the company's stock price has been steadily declining. As an auditor, what would concern you about the audit engagement of DATRIX, Inc.

The objectives of the engagement partner's communication with the audit team include:

Inherent risk includes sampling risk and detection risk.

You are teaching a class of new hires at your international accounting firm. Explain the audit risk model using a mathematical formula. AR = RMM × DR AR = Audit risk RMM = Risk of material misstatement DR = Detection risk

Your classmate asserts, "Accountants shouldn't need to take business courses besides accounting, because they are only interested in the financial statements of a company." Defend or refute this statement.

When an entity moves into a significant new line of business, all of the following increase except:

When assessing the risk of material misstatement, auditors evaluate the reasonableness of an entity's accounting estimates. An auditor normally would be concerned about assumptions that are:

Which of the following is a source of detection risk?

Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?

Under Auditing Standards, which of the following would be classified as an error?

Which of the following procedures would not be used to obtain an understanding of the entity and its environment?

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

Which of the following is not a misstatement of the financial statements?

In one sentence each, define misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets.

An auditor learns that a client's employee in control of inventory gets divorced and is responsible for paying a large amount of child support. All of the following for the audit of inventory likely are true except:

The components of the audit risk model include inherent risk, control risk, and detection risk.

Which of the following circumstances most likely would cause an auditor to believe that material misstatements may exist in an entity's financial statements?

Which of the following is correct concerning required auditor communications about fraud?

Which of the following audit risk components may be assessed in qualitative terms?

Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements?

DATRIX, Inc., a Fortune 500 company, has been experiencing poor performance. Industry analysts have been issuing negative reports and the company's stock price has been steadily declining. As an auditor, what would concern you about the audit engagement of DATRIX, Inc.

The objectives of the engagement partner's communication with the audit team include:

Inherent risk includes sampling risk and detection risk.

You are teaching a class of new hires at your international accounting firm. Explain the audit risk model using a mathematical formula. AR = RMM × DR AR = Audit risk RMM = Risk of material misstatement DR = Detection risk

Your classmate asserts, "Accountants shouldn't need to take business courses besides accounting, because they are only interested in the financial statements of a company." Defend or refute this statement.

When an entity moves into a significant new line of business, all of the following increase except:

When assessing the risk of material misstatement, auditors evaluate the reasonableness of an entity's accounting estimates. An auditor normally would be concerned about assumptions that are:

Which of the following is a source of detection risk?

Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?

Under Auditing Standards, which of the following would be classified as an error?

Which of the following procedures would not be used to obtain an understanding of the entity and its environment?

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