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

Sampling error represents the minimum misstatement amount that exists in all accounts subjected to sampling.

Accepted Answer

A) True 
 B)False

Question 4

Likely misstatements can result from:

Accepted Answer

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

Question 5

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 6

Amounts involving fraud are not usually considered qualitative factors affecting the preliminary materiality judgment.

Accepted Answer

A) True 
 B)False

Question 7

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 8

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 9

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 10

Which of the following statements is false?

Accepted Answer

A)  Either an overstatement of an asset account or an understatement of a liability account would have the same effect on the income statement. 
B)  A misclassification in the balance sheet will have no effect on operating income. 
C)  Either an overstatement of an asset account or an overstatement of a liability account would have the same effect on the income statement. 
D)  Either an understatement of an asset account or an overstatement of a liability account would have the same effect on the income statement. 
A)  Either an overstatement of an asset account or an understatement of a liability account would have the same effect on the income statement. 
B)  A misclassification in the balance sheet will have no effect on operating income. 
C)  Either an overstatement of an asset account or an overstatement of a liability account would have the same effect on the income statement. 
D)  Either an understatement of an asset account or an overstatement of a liability account would have the same effect on the income statement.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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.

Question 13

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 14

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 15

A high detection risk equates to a low amount of audit evidence needed.

Accepted Answer

A) True 
 B)False

Question 16

Auditors begin their assessment of inherent risk during the planning phase and update the assessments throughout the audit.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Both overstatements and understatements must be considered when allocating materiality to balance sheet accounts.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

Exam 9: Considering Materiality and Audit 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:

Sampling error represents the minimum misstatement amount that exists in all accounts subjected to sampling.

Likely misstatements can result from:

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

Amounts involving fraud are not usually considered qualitative factors affecting the preliminary materiality judgment.

The risk of material misstatement refers to:

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

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

Which of the following statements is false?

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

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:

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

A high detection risk equates to a low amount of audit evidence needed.

Auditors begin their assessment of inherent risk during the planning phase and update the assessments throughout the audit.

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

Both overstatements and understatements must be considered when allocating materiality to balance sheet accounts.

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

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

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan 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 Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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