Question 1

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. A

Question 2

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 client'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 client's financial failure. B

Question 3

Professional judgment must be used when evaluating business risk.

Accepted Answer

A) True 
 B)False  True

Question 4

As the acceptable level of detection risk decreases,an auditor may change the

Accepted Answer

A)  Timing of tests of controls by performing them at an interim date rather than at year-end. 
B)  Nature of substantive procedures from less effective to more effective procedures. 
C)  Timing of tests of controls by performing them at several dates rather than at one time. 
D)  Assessed level of risk of material misstatement to a higher amount. 
A)  Timing of tests of controls by performing them at an interim date rather than at year-end. 
B)  Nature of substantive procedures from less effective to more effective procedures. 
C)  Timing of tests of controls by performing them at several dates rather than at one time. 
D)  Assessed level of risk of material misstatement to a higher amount.

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 field work. 
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 field work. 
D)  Management consults with other accountants about significant accounting matters.

Question 6

Increased fraud risk could also result in all of the following except:

Accepted Answer

A)  Lower detection risk. 
B)  Higher inherent risk. 
C)  Lower control risk. 
D)  Higher client risk. 
A)  Lower detection risk. 
B)  Higher inherent risk. 
C)  Lower control risk. 
D)  Higher client risk.

Question 7

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 8

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 9

The auditor is most likely to presume that a high risk of a fraud exists if

Accepted Answer

A)  The entity is a multinational company that does business in numerous foreign countries. 
B)  The entity does business with several related parties. 
C)  Inadequate segregation of duties places an employee in a position to perpetrate and conceal theft. 
D)  Inadequate employee training results in lengthy EDP exception reports each month. 
A)  The entity is a multinational company that does business in numerous foreign countries. 
B)  The entity does business with several related parties. 
C)  Inadequate segregation of duties places an employee in a position to perpetrate and conceal theft. 
D)  Inadequate employee training results in lengthy EDP exception reports each month.

Question 10

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 11

Define misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets in one sentence each.

Accepted Answer

Misstatements arising from fraudulent fi

Question 12

The risk of a material misstatement includes inherent risk and sampling risk.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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)  Planning materiality. 
D)  Risk of failing to discover material misstatements. 
A)  Extent of the substantive procedures. 
B)  Risk of misapplying auditing procedures. 
C)  Planning materiality. 
D)  Risk of failing to discover material misstatements.

Question 15

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

None

Question 16

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

Question 17

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 18

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 19

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 20

An auditor learns that a client 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.

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

Engagement risk is

Professional judgment must be used when evaluating business risk.

As the acceptable level of detection risk decreases,an auditor may change the

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

Increased fraud risk could also result in all of the following except:

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

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

The auditor is most likely to presume that a high risk of a fraud exists if

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.

Define misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets in one sentence each.

The risk of a material misstatement includes inherent risk and sampling risk.

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

The acceptable level of detection risk is inversely related to the

The primary responsibility for preventing fraud in an organization lies with

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

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

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

An auditor learns that a client 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

Assurance,Attestation,and Internal Auditing Services

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

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

Engagement risk is

Professional judgment must be used when evaluating business risk.

As the acceptable level of detection risk decreases,an auditor may change the

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

Increased fraud risk could also result in all of the following except:

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

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

The auditor is most likely to presume that a high risk of a fraud exists if

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.

Define misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets in one sentence each.

The risk of a material misstatement includes inherent risk and sampling risk.

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

The acceptable level of detection risk is inversely related to the

The primary responsibility for preventing fraud in an organization lies with

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

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

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

An auditor learns that a client 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

Assurance,Attestation,and Internal Auditing Services

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