Question 1

Audit 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 2

An auditor discovers a likely fraud during an audit but concludes that the overall effect of the fraud is not sufficiently material to affect the audit opinion.The auditor should probably

Accepted Answer

A)  Disclose the fraud to the appropriate level of the client's management. 
B)  Disclose the fraud to appropriate authorities external to the client. 
C)  Discuss with the client the additional audit procedures that will be needed to identify the exact amount of the fraud. 
D)  Modify the audit program to include tests specifically designed to identify the fraud and its impact on the financial statements. 
A)  Disclose the fraud to the appropriate level of the client's management. 
B)  Disclose the fraud to appropriate authorities external to the client. 
C)  Discuss with the client the additional audit procedures that will be needed to identify the exact amount of the fraud. 
D)  Modify the audit program to include tests specifically designed to identify the fraud and its impact on the financial statements.

Question 3

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 4

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 5

Inherent risk includes sampling risk and detection risk.

Accepted Answer

A) True 
 B)False

Question 6

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 included 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 included highly subjective estimates.

Question 7

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 8

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 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  The client 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 client 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 11

Under Statements on 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 12

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 13

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 14

On the basis of audit evidence gathered and evaluated,an auditor decides to increase the assessed level of risk of material misstatement from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level,the auditor would

Accepted Answer

A)  Decrease amount of substantive testing. 
B)  Decrease detection risk. 
C)  Increase detection risk. 
D)  Increase materiality levels. 
A)  Decrease amount of substantive testing. 
B)  Decrease detection risk. 
C)  Increase detection risk. 
D)  Increase materiality levels.

Question 15

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 .06.The risk of material misstatement is assessed at .65.What is the detection risk for this audit?

Accepted Answer

Substituting the values into t

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

An auditor discovers a likely fraud during an audit but concludes that the overall effect of the fraud is not sufficiently material to affect the audit opinion.The auditor should probably

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

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

Inherent risk includes sampling risk and detection risk.

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

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

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

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

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

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

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 risk of material misstatement includes which of the following?

On the basis of audit evidence gathered and evaluated,an auditor decides to increase the assessed level of risk of material misstatement from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level,the auditor would

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 .06.The risk of material misstatement is assessed at .65.What is the detection risk for this audit?

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

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

An auditor discovers a likely fraud during an audit but concludes that the overall effect of the fraud is not sufficiently material to affect the audit opinion.The auditor should probably

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

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

Inherent risk includes sampling risk and detection risk.

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

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

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

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

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

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

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 risk of material misstatement includes which of the following?

On the basis of audit evidence gathered and evaluated,an auditor decides to increase the assessed level of risk of material misstatement from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level,the auditor would

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 .06.The risk of material misstatement is assessed at .65.What is the detection risk for this audit?

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