Question 1

A properly planned and performed audit may fail to detect a material misstatement resulting from fraud because

Accepted Answer

A)  Audit procedures that are otherwise effective may be ineffective for fraud that is concealed through collusion. 
B)  An audit is planned and performed to provide reasonable assurance of detecting material misstatements caused by errors but not by fraud. 
C)  The factors considered in assessing control risk indicated an increased risk of error but only a low risk of fraud in the financial statements. 
D)  The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole. 
A)  Audit procedures that are otherwise effective may be ineffective for fraud that is concealed through collusion. 
B)  An audit is planned and performed to provide reasonable assurance of detecting material misstatements caused by errors but not by fraud. 
C)  The factors considered in assessing control risk indicated an increased risk of error but only a low risk of fraud in the financial statements. 
D)  The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole.

Question 2

Which of the following is not an important consideration in an auditor's evaluation of an entity's business risk?

Accepted Answer

A)  The specific business risks an entity faces that may result in financial statement errors and fraud. 
B)  Business risk factors that impact the ability of the entity to be profitable and survive. 
C)  Audit standards include many entity business risk factors that identify circumstances that increase the likelihood of material misstatements. 
D)  Audit standards require the auditor to evaluate the entity's business risk in order to provide suggestions to improve the entity's profitability. 
A)  The specific business risks an entity faces that may result in financial statement errors and fraud. 
B)  Business risk factors that impact the ability of the entity to be profitable and survive. 
C)  Audit standards include many entity business risk factors that identify circumstances that increase the likelihood of material misstatements. 
D)  Audit standards require the auditor to evaluate the entity's business risk in order to provide suggestions to improve the entity's profitability.

Question 3

You are teaching a class of new hires at your international accounting firm. Explain the audit risk model using a mathematical formula.

Accepted Answer

AR = RMM x DR
AR = Audit risk
RMM = Risk

Question 4

Client risk as defined in the text is

Accepted Answer

A)  The auditor's risk of loss from events arising in connection with financial statements audited and reported upon. 
B)  The overall risk of material misstatement. 
C)  The risk that audit procedures will fail to detect material misstatements. 
D)  The risk of the entity's financial failure. 
A)  The auditor's risk of loss from events arising in connection with financial statements audited and reported upon. 
B)  The overall risk of material misstatement. 
C)  The risk that audit procedures will fail to detect material misstatements. 
D)  The risk of the entity's financial failure.

Question 5

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 6

You are the senior on an audit of Two Be Gone, a large public company. The company recently completed an acquisition of its fifth largest competitor. What risks might this present? How will you, the auditor, respond to these risks (i.e. what actions should you take)?

Accepted Answer

Student answers for the first question w

Question 7

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 8

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

Accepted Answer

A) True 
 B)False

Question 9

An auditor knows that an audit client operating in an industry in which common stock is valued based on the price-earnings ratio will soon make an initial public offering. All of the following are true except:

Accepted Answer

A)  Materiality should be reduced. 
B)  Risk of material misstatement should increase. 
C)  Detection risk should decrease. 
D)  Audit risk should increase. 
A)  Materiality should be reduced. 
B)  Risk of material misstatement should increase. 
C)  Detection risk should decrease. 
D)  Audit risk should increase.

Question 10

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 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

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

Accepted Answer

A)  Heavily emphasizing the importance of professional skepticism. 
B)  Assigning more experienced personnel to the audit. 
C)  Increasing detection risk. 
D)  Taking steps to obtain more reliable evidence. 
A)  Heavily emphasizing the importance of professional skepticism. 
B)  Assigning more experienced personnel to the audit. 
C)  Increasing detection risk. 
D)  Taking steps to obtain more reliable evidence.

Question 13

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.

Question 14

All of the following represent an increased opportunity for management to commit fraud except:

Accepted Answer

A)  Significant related party transactions. 
B)  The auditor's relationship with management is strained. 
C)  Management is dominated by a single person. 
D)  The financial statements include highly subjective estimates. 
A)  Significant related party transactions. 
B)  The auditor's relationship with management is strained. 
C)  Management is dominated by a single person. 
D)  The financial statements include highly subjective estimates.

Question 15

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.

A properly planned and performed audit may fail to detect a material misstatement resulting from fraud because

Which of the following is not an important consideration in an auditor's evaluation of an entity's business risk?

You are teaching a class of new hires at your international accounting firm. Explain the audit risk model using a mathematical formula.

Client risk as defined in the text is

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

You are the senior on an audit of Two Be Gone, a large public company. The company recently completed an acquisition of its fifth largest competitor. What risks might this present? How will you, the auditor, respond to these risks (i.e. what actions should you take)?

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

An auditor knows that an audit client operating in an industry in which common stock is valued based on the price-earnings ratio will soon make an initial public offering. All of the following are true except:

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

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

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

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

All of the following represent an increased opportunity for management to commit fraud except:

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:

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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

A properly planned and performed audit may fail to detect a material misstatement resulting from fraud because

Which of the following is not an important consideration in an auditor's evaluation of an entity's business risk?

You are teaching a class of new hires at your international accounting firm. Explain the audit risk model using a mathematical formula.

Client risk as defined in the text is

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

You are the senior on an audit of Two Be Gone, a large public company. The company recently completed an acquisition of its fifth largest competitor. What risks might this present? How will you, the auditor, respond to these risks (i.e. what actions should you take)?

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

An auditor knows that an audit client operating in an industry in which common stock is valued based on the price-earnings ratio will soon make an initial public offering. All of the following are true except:

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

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

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

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

All of the following represent an increased opportunity for management to commit fraud except:

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:

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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