Question 1

An engagement letter is prepared by an auditor and acknowledged by a client _______.

Accepted Answer

A) before the audit begins 
B) after the audit is completed 
C) before the client's year-end 
D) after the interim report is issued 
A) before the audit begins 
B) after the audit is completed 
C) before the client's year-end 
D) after the interim report is issued A

Question 2

Substantive procedures are also known as _______.

Accepted Answer

A) tests of details 
B) tests of controls 
C) tests of complex transactions 
D) risk assessment 
A) tests of details 
B) tests of controls 
C) tests of complex transactions 
D) risk assessment A

Question 3

An audit plan details the nature, extent, and timing of audit procedures to be performed.The "nature" of audit procedures is best defined as _______.

Accepted Answer

A) what type of procedure will be used 
B) the reliability and relevance of evidence obtained in the audit 
C) when the procedure will be performed 
D) how much testing will be done 
A) what type of procedure will be used 
B) the reliability and relevance of evidence obtained in the audit 
C) when the procedure will be performed 
D) how much testing will be done A

Question 4

If inherent risk is determined to be high for an account or assertion, the next step is to _______.

Accepted Answer

A) determine if an internal control is in place to mitigate the risk of a material misstatement 
B) determine if professional skepticism is being used 
C) determine whether management is aware of the risk 
D) perform less extensive detailed substantive tests 
A) determine if an internal control is in place to mitigate the risk of a material misstatement 
B) determine if professional skepticism is being used 
C) determine whether management is aware of the risk 
D) perform less extensive detailed substantive tests

Question 5

Which of the following is a red flag of fraud?

Accepted Answer

A) High turnover of key employees 
B) High inventory turnover rate 
C) High current ratios 
D) High quick ratios 
A) High turnover of key employees 
B) High inventory turnover rate 
C) High current ratios 
D) High quick ratios

Question 6

Which of the following is not a phase of the audit?

Accepted Answer

A) The risk continuance phase 
B) The risk assessment phase 
C) The risk response phase 
D) The reporting phase 
A) The risk continuance phase 
B) The risk assessment phase 
C) The risk response phase 
D) The reporting phase

Question 7

The determination of performance materiality is _________________and involves the exercise of professional judgment.

Accepted Answer

A) not a simple mechanical calculation 
B) a simple mechanical calculation 
C) a simple manual calculation 
D) a mechanical calculation that includes solving for derivatives 
A) not a simple mechanical calculation 
B) a simple mechanical calculation 
C) a simple manual calculation 
D) a mechanical calculation that includes solving for derivatives

Question 8

The application of human bias toward client preferences can impede professional skepticism.Which of the following is an example of human bias at work in the audit?

Accepted Answer

A) Evaluating audit evidence consistent with client preferences 
B) No overt emphasis on selling additional services to the client 
C) No overt emphasis on keeping audit costs low 
D) Gathering complex evidence that is the most reliable and relevant 
A) Evaluating audit evidence consistent with client preferences 
B) No overt emphasis on selling additional services to the client 
C) No overt emphasis on keeping audit costs low 
D) Gathering complex evidence that is the most reliable and relevant

Question 9

Which of the following is NOT an element of a firms' quality control system that can help ensure the appropriate application of professional skepticism?

Accepted Answer

A) Heavy workload 
B) Firm culture 
C) Professional competence and assigning personnel to engagement teams 
D) Documentation 
A) Heavy workload 
B) Firm culture 
C) Professional competence and assigning personnel to engagement teams 
D) Documentation

Question 10

When the financial statements are materially misstated for a particular client, which of the following will constitute an audit risk?

Accepted Answer

A) An auditor expressing an incorrect audit opinion 
B) The discontinuance of an internal process from a previous year 
C) Creditors and investors expressing a favorable opinion 
D) Some stakeholders not relying on the auditing firm 
A) An auditor expressing an incorrect audit opinion 
B) The discontinuance of an internal process from a previous year 
C) Creditors and investors expressing a favorable opinion 
D) Some stakeholders not relying on the auditing firm

Question 11

Which of the following is most likely an example of an opportunity that increases the risk that a fraud may have been perpetrated?

Accepted Answer

A) A high volume of transactions close to year-end 
B) A high turnover of clerical staff 
C) A high reliance on simple accounting transactions 
D) A high amount of depreciation expense 
A) A high volume of transactions close to year-end 
B) A high turnover of clerical staff 
C) A high reliance on simple accounting transactions 
D) A high amount of depreciation expense

Question 12

When classifying risks as being significant, consideration is given to whether the risk involves all the following except involvement of _______.

Accepted Answer

A) very simple transactions 
B) fraud 
C) significant third parties 
D) significant subjectivity in measurement 
A) very simple transactions 
B) fraud 
C) significant third parties 
D) significant subjectivity in measurement

Question 13

During which phase or phases of the audit do auditors adopt the attitude of professional skepticism?

Accepted Answer

A) risk response phase 
B) reporting phase 
C) risk assessment phase 
D) all phases of the audit 
A) risk response phase 
B) reporting phase 
C) risk assessment phase 
D) all phases of the audit

Question 14

Which of the following are true in the light of AU-C 210 Terms of Engagement and AS 2610 Initial audits - Communications between Predecessor and Successor Auditors?

Accepted Answer

A) The auditor must obtain permission from the prospective client before communicating with the previous auditor. 
B) A prospective client may decline to grant an auditor the permission to communicate with the previous auditor. 
C) The refusal of a prospective client to grant access to previous auditors has no bearing an auditor's decision to accept the engagement. 
D) The law mandates that a prospective permit an auditor to communicate with a previous auditor of the client. 
A) The auditor must obtain permission from the prospective client before communicating with the previous auditor. 
B) A prospective client may decline to grant an auditor the permission to communicate with the previous auditor. 
C) The refusal of a prospective client to grant access to previous auditors has no bearing an auditor's decision to accept the engagement. 
D) The law mandates that a prospective permit an auditor to communicate with a previous auditor of the client.

Question 15

Which of the following is an amount set by the auditor that is used to make decisions about the extent of audit procedures for a particular class of transaction, account balance, or disclosure?

Accepted Answer

A) Performance materiality 
B) Planning materiality 
C) Overall materiality 
D) Qualitative materiality 
A) Performance materiality 
B) Planning materiality 
C) Overall materiality 
D) Qualitative materiality

Question 16

Audit risk is best defined as the _______.

Accepted Answer

A) risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated 
B) application of risk assessment procedures 
C) element that helps form risk assessment 
D) risk of noncompliance with laws and regulations 
A) risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated 
B) application of risk assessment procedures 
C) element that helps form risk assessment 
D) risk of noncompliance with laws and regulations

Question 17

Typically, which of the following are income statement benchmarks?

Accepted Answer

A) Profit before tax 
B) Total revenue 
C) Cost of goods sold 
D) Operating expenses 
A) Profit before tax 
B) Total revenue 
C) Cost of goods sold 
D) Operating expenses

Question 18

Auditors want a low audit risk of 5% and a low detection risk of 5%.In order to achieve this, what will inherent risk and control risk have to be?

Accepted Answer

A) 100% for both 
B) 1% for inherent risk and 100% for control risk 
C) 1% for both 
D) The risks cannot be determined because there is not enough information. 
A) 100% for both 
B) 1% for inherent risk and 100% for control risk 
C) 1% for both 
D) The risks cannot be determined because there is not enough information.

Question 19

AU-C 200.A22, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards states auditors should be skeptical if which of the following situations arises during the audit?

Accepted Answer

A) Situations that indicate the need for additional audit procedures beyond what is required by generally accepted auditing standards 
B) An environment of information stability and little change of client documents 
C) Conditions where gaining evidence of possible fraud is impossible 
D) Audit evidence recently gathered agrees with other evidence previously gathered 
A) Situations that indicate the need for additional audit procedures beyond what is required by generally accepted auditing standards 
B) An environment of information stability and little change of client documents 
C) Conditions where gaining evidence of possible fraud is impossible 
D) Audit evidence recently gathered agrees with other evidence previously gathered

Question 20

A pressure on auditors to maintain good client relationships to ensure future audit engagements leads to a change in thinking that could _________.

Accepted Answer

A) weaken professional skepticism 
B) strengthen tests of controls 
C) reduce significant risk 
D) increase quantitative materiality 
A) weaken professional skepticism 
B) strengthen tests of controls 
C) reduce significant risk 
D) increase quantitative materiality

An engagement letter is prepared by an auditor and acknowledged by a client _______.

Substantive procedures are also known as _______.

An audit plan details the nature, extent, and timing of audit procedures to be performed.The "nature" of audit procedures is best defined as _______.

If inherent risk is determined to be high for an account or assertion, the next step is to _______.

Which of the following is a red flag of fraud?

Which of the following is not a phase of the audit?

The determination of performance materiality is _________________and involves the exercise of professional judgment.

The application of human bias toward client preferences can impede professional skepticism.Which of the following is an example of human bias at work in the audit?

Which of the following is NOT an element of a firms' quality control system that can help ensure the appropriate application of professional skepticism?

When the financial statements are materially misstated for a particular client, which of the following will constitute an audit risk?

Which of the following is most likely an example of an opportunity that increases the risk that a fraud may have been perpetrated?

When classifying risks as being significant, consideration is given to whether the risk involves all the following except involvement of _______.

During which phase or phases of the audit do auditors adopt the attitude of professional skepticism?

Which of the following are true in the light of AU-C 210 Terms of Engagement and AS 2610 Initial audits - Communications between Predecessor and Successor Auditors?

Which of the following is an amount set by the auditor that is used to make decisions about the extent of audit procedures for a particular class of transaction, account balance, or disclosure?

Audit risk is best defined as the _______.

Typically, which of the following are income statement benchmarks?

Auditors want a low audit risk of 5% and a low detection risk of 5%.In order to achieve this, what will inherent risk and control risk have to be?

AU-C 200.A22, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards states auditors should be skeptical if which of the following situations arises during the audit?

A pressure on auditors to maintain good client relationships to ensure future audit engagements leads to a change in thinking that could _________.

Introduction and Overview of Audit and Assurance

Professionalism, Ethics and Legal Liability

Risk Assessment Part Iiunderstanding the Client

Audit Evidence

Understanding of the Clients System of Internal Controls

Data Analyticsoverview and Application

Risk Responseperforming Tests of Controls

Risk Responseperforming Substantive Procedures

Risk Responseaudit Sampling for Substantive Testing

Auditing the Revenue Cycle

Auditing the Purchases Cycle and Payroll Cycle

Auditing Cash, Inventory, Investing and Financing Activities

Completing the Audit

Reporting on the Audit

Filters

Exam 3: Risk Assessment Part Iaudit Risk and Audit Strategy

An engagement letter is prepared by an auditor and acknowledged by a client _______.

Substantive procedures are also known as _______.

An audit plan details the nature, extent, and timing of audit procedures to be performed.The "nature" of audit procedures is best defined as _______.

If inherent risk is determined to be high for an account or assertion, the next step is to _______.

Which of the following is a red flag of fraud?

Which of the following is not a phase of the audit?

The determination of performance materiality is _________________and involves the exercise of professional judgment.

The application of human bias toward client preferences can impede professional skepticism.Which of the following is an example of human bias at work in the audit?

Which of the following is NOT an element of a firms' quality control system that can help ensure the appropriate application of professional skepticism?

When the financial statements are materially misstated for a particular client, which of the following will constitute an audit risk?

Which of the following is most likely an example of an opportunity that increases the risk that a fraud may have been perpetrated?

When classifying risks as being significant, consideration is given to whether the risk involves all the following except involvement of _______.

During which phase or phases of the audit do auditors adopt the attitude of professional skepticism?

Which of the following are true in the light of AU-C 210 Terms of Engagement and AS 2610 Initial audits - Communications between Predecessor and Successor Auditors?

Which of the following is an amount set by the auditor that is used to make decisions about the extent of audit procedures for a particular class of transaction, account balance, or disclosure?

Audit risk is best defined as the _______.

Typically, which of the following are income statement benchmarks?

Auditors want a low audit risk of 5% and a low detection risk of 5%.In order to achieve this, what will inherent risk and control risk have to be?

AU-C 200.A22, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards states auditors should be skeptical if which of the following situations arises during the audit?

A pressure on auditors to maintain good client relationships to ensure future audit engagements leads to a change in thinking that could _________.

Introduction and Overview of Audit and Assurance

Professionalism, Ethics and Legal Liability

Risk Assessment Part Iiunderstanding the Client

Audit Evidence

Understanding of the Clients System of Internal Controls

Data Analyticsoverview and Application

Risk Responseperforming Tests of Controls

Risk Responseperforming Substantive Procedures

Risk Responseaudit Sampling for Substantive Testing

Auditing the Revenue Cycle

Auditing the Purchases Cycle and Payroll Cycle

Auditing Cash, Inventory, Investing and Financing Activities

Completing the Audit

Reporting on the Audit

Filters