Question 1

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. D

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

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. C

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

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 entity'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 entity's financial failure.

Question 6

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 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

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 9

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 10

Inherent risk includes sampling risk and detection risk.

Accepted Answer

A) True 
 B)False

Question 11

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.

Question 12

In general,material frauds perpetrated by which of the following are most difficult to detect?

Accepted Answer

A)  Internal audit function. 
B)  Keypunch operator. 
C)  Cashier. 
D)  Controller. 
A)  Internal audit function. 
B)  Keypunch operator. 
C)  Cashier. 
D)  Controller.

Question 13

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 att

Question 14

Engagement risk can be eliminated by

Accepted Answer

A)  Establishing policies for client acceptance and continuance. 
B)  Lowering audit risk. 
C)  Lowering materiality. 
D)  Engagement risk cannot be eliminated. 
A)  Establishing policies for client acceptance and continuance. 
B)  Lowering audit risk. 
C)  Lowering materiality. 
D)  Engagement risk cannot be eliminated.

Question 15

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 16

What is the difference between audit risk and engagement risk?

Accepted Answer

Audit risk is the risk that the auditor

Question 17

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 18

When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective,the auditor would most likely increase the

Accepted Answer

A)  Extent of tests of controls. 
B)  Level of detection risk. 
C)  Extent of substantive tests. 
D)  Level of inherent risk. 
A)  Extent of tests of controls. 
B)  Level of detection risk. 
C)  Extent of substantive tests. 
D)  Level of inherent risk.

Question 19

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 20

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.

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

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

Which of the following is a source of detection risk?

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

Engagement risk is

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 audit risk components may be assessed in qualitative terms?

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

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

Inherent risk includes sampling risk and detection risk.

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

In general,material frauds perpetrated by which of the following are most difficult to detect?

Engagement risk can be eliminated by

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

What is the difference between audit risk and engagement 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:

When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective,the auditor would most likely increase the

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.

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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

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Exam 4: Risk Assessment

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

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

Which of the following is a source of detection risk?

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

Engagement risk is

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 audit risk components may be assessed in qualitative terms?

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

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

Inherent risk includes sampling risk and detection risk.

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

In general,material frauds perpetrated by which of the following are most difficult to detect?

Engagement risk can be eliminated by

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

What is the difference between audit risk and engagement 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:

When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective,the auditor would most likely increase the

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.

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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

Filters