Question 1

Misstatements that impact a user's decision-making process for a reason other than its magnitude constitute ________ materiality.

Accepted Answer

A) qualitative 
B) quantitative 
C) performance 
D) All of these answer choices are correct 
A) qualitative 
B) quantitative 
C) performance 
D) All of these answer choices are correct

Question 2

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 certain situations arise.Which situation is NOT included in those that AU-C 200.A22 presents?

Accepted Answer

A) A situation indicates that there is the need for fewer audit procedures. 
B) Audit evidence recently gathered is contradictory to other evidence previously gathered. 
C) New information brings into question the reliability of client documents or responses to auditor inquiries. 
D) Conditions are observed that indicate evidence of possible fraud. 
A) A situation indicates that there is the need for fewer audit procedures. 
B) Audit evidence recently gathered is contradictory to other evidence previously gathered. 
C) New information brings into question the reliability of client documents or responses to auditor inquiries. 
D) Conditions are observed that indicate evidence of possible fraud.

Question 3

In the context of identifying fraud, which of the following describes theft of inventory by employees or others?

Accepted Answer

A) Misappropriation of assets 
B) Fraudulent financial reporting 
C) A loss that is not the result of fraud 
D) Cooking the books 
A) Misappropriation of assets 
B) Fraudulent financial reporting 
C) A loss that is not the result of fraud 
D) Cooking the books

Question 4

The use of performance materiality should:

Accepted Answer

A) reduce the probability that the sum of immaterial and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole. 
B) increase the probability that the sum of immaterial and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole. 
C) reduce the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole. 
D) increase the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole. 
A) reduce the probability that the sum of immaterial and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole. 
B) increase the probability that the sum of immaterial and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole. 
C) reduce the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole. 
D) increase the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole.

Question 5

The determination of when audit procedures will be performed is primarily dependent upon _______.

Accepted Answer

A) the effectiveness of the client's controls 
B) the effectiveness of the client's human resources manager 
C) the audit fee 
D) the effectiveness of client's cloud functionality 
A) the effectiveness of the client's controls 
B) the effectiveness of the client's human resources manager 
C) the audit fee 
D) the effectiveness of client's cloud functionality

Question 6

Performance of detailed tests of controls and substantive testing is typically accomplished in the ____________ phase of the audit.

Accepted Answer

A) risk response 
B) audit strategy 
C) reporting 
D) risk assessment 
A) risk response 
B) audit strategy 
C) reporting 
D) risk assessment

Question 7

What is the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated?

Accepted Answer

A) Audit risk 
B) Risk response 
C) Risk assessment 
D) Risk reporting 
A) Audit risk 
B) Risk response 
C) Risk assessment 
D) Risk reporting

Question 8

What type of direct inquiry does an auditor make of the audit committee regarding the potential for fraud?

Accepted Answer

A) The auditor inquires about the audit committee's role in preventing and detecting fraud. 
B) The auditor inquires about the audit committee's role to communicate with vendors. 
C) The auditor inquires about the audit committee's role in the auditor brainstorming session. 
D) The auditor inquires about the audit committee's role in determining performance materiality for the audit. 
A) The auditor inquires about the audit committee's role in preventing and detecting fraud. 
B) The auditor inquires about the audit committee's role to communicate with vendors. 
C) The auditor inquires about the audit committee's role in the auditor brainstorming session. 
D) The auditor inquires about the audit committee's role in determining performance materiality for the audit.

Question 9

Auditors may decide to perform some tests of controls or not perform any tests of controls, if inherent risk is assessed as ________.

Accepted Answer

A) moderate or low 
B) high or moderate 
C) unusually high 
D) None of these options are correct. 
A) moderate or low 
B) high or moderate 
C) unusually high 
D) None of these options are correct.

Question 10

A detection risk of 1.5 or 150% means _______.

Accepted Answer

A) there would be a 150% risk that the auditors' procedures will not be effective in detecting a material misstatement 
B) auditors will need to undertake 1.5 times the audit procedures planned in the initial stages of the audit 
C) there would be a 150% risk that the auditors' procedures will be effective in detecting a material misstatement 
D) auditors will perform extensive detailed testing of related account balances and use larger sample sizes because a 1.5 detection risk is a low detection risk 
A) there would be a 150% risk that the auditors' procedures will not be effective in detecting a material misstatement 
B) auditors will need to undertake 1.5 times the audit procedures planned in the initial stages of the audit 
C) there would be a 150% risk that the auditors' procedures will be effective in detecting a material misstatement 
D) auditors will perform extensive detailed testing of related account balances and use larger sample sizes because a 1.5 detection risk is a low detection risk

Question 11

Which of the following is a negative factor influencing client acceptance and retention with respect to competence issues?

Accepted Answer

A) The audit firm does not have the affiliation with specialists to meet client needs. 
B) The client has a weak accounting system with few internal controls. 
C) The audit firm has conflict of interest issues that cannot be resolved prior to client acceptance. 
D) There are significant regulatory reporting requirements with close monitoring by regulators. 
A) The audit firm does not have the affiliation with specialists to meet client needs. 
B) The client has a weak accounting system with few internal controls. 
C) The audit firm has conflict of interest issues that cannot be resolved prior to client acceptance. 
D) There are significant regulatory reporting requirements with close monitoring by regulators.

Question 12

What audit procedures are designed to detect material misstatements at the assertion level?

Accepted Answer

A) Substantive procedures 
B) Tests of control 
C) Fraudulent financial reporting 
D) Misappropriation of assets 
A) Substantive procedures 
B) Tests of control 
C) Fraudulent financial reporting 
D) Misappropriation of assets

Question 13

In addition to income before income taxes, another acceptable benchmark(s) for private company audits is(are) _______.

Accepted Answer

A) total assets and total revenues 
B) net income 
C) income tax rate 
D) net liabilities 
A) total assets and total revenues 
B) net income 
C) income tax rate 
D) net liabilities

Question 14

Which of the following involves gaining an understanding of the client, identifying risk factors, developing an audit strategy, and setting planning materiality?

Accepted Answer

A) Risk assessment phase 
B) Risk response phase 
C) Substantive procedures 
D) Tests of controls 
A) Risk assessment phase 
B) Risk response phase 
C) Substantive procedures 
D) Tests of controls

Question 15

Timing differences such as bringing forward the recognition of revenues and delaying the recognition of expenses are examples of ________.

Accepted Answer

A) fraudulent financial reporting 
B) misappropriation of assets 
C) performance materiality 
D) professional skepticism 
A) fraudulent financial reporting 
B) misappropriation of assets 
C) performance materiality 
D) professional skepticism

Question 16

Which of the following are examples of fraudulent financial reporting?

Accepted Answer

A) Improper asset valuations 
B) Unrecorded liabilities 
C) Recording fictitious sales 
D) Writing checks to fictitious vendors 
A) Improper asset valuations 
B) Unrecorded liabilities 
C) Recording fictitious sales 
D) Writing checks to fictitious vendors

Question 17

The audit risk model can also be used for quantitative analysis in which all risks are stated as a percentage ranging from _______.

Accepted Answer

A) 1% to 1% 
B) 1% to 100% 
C) 1% to 10% 
D) 1% to 5% 
A) 1% to 1% 
B) 1% to 100% 
C) 1% to 10% 
D) 1% to 5%

Question 18

Suppose auditors assess inherent risk and control risk as low, 25% and 8% respectively.If auditors want to keep audit risk relatively low at 5%, then what is detection risk?

Accepted Answer

A) 2.50 or 250% 
B) .02 or 2% 
C) .05 or 5% 
D) 2.00 or 200% 
A) 2.50 or 250% 
B) .02 or 2% 
C) .05 or 5% 
D) 2.00 or 200%

Question 19

In an audit situation, which of the following risks can be reduced to zero?

Accepted Answer

A) Detection risk and inherent risk, but not control risk 
B) Inherent risk, control risk, and detection risk 
C) Control risk and detection risk, but not inherent risk 
D) Neither detection risk, inherent risk, nor control risk. 
A) Detection risk and inherent risk, but not control risk 
B) Inherent risk, control risk, and detection risk 
C) Control risk and detection risk, but not inherent risk 
D) Neither detection risk, inherent risk, nor control risk.

Question 20

Martin Inc.is being audited by the firm MNE and Associates.MNE's auditors decide that $100 million is the planning materiality and $50 million is the appropriate performance materiality at the account level.If all of Martin's account balances are below $50 million, the auditors will:

Accepted Answer

A) still perform detailed some audit procedures on the account because the immaterial misstatements can be material in aggregate. 
B) to perform detailed audit procedures on the accounts because the sum of Martin's accounts is greater than $50 million. 
C) end audit procedures, both detailed and on controls, because performance materiality has reduced the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole. 
D) check the auditing standard guidelines for the determination of performance materiality. 
A) still perform detailed some audit procedures on the account because the immaterial misstatements can be material in aggregate. 
B) to perform detailed audit procedures on the accounts because the sum of Martin's accounts is greater than $50 million. 
C) end audit procedures, both detailed and on controls, because performance materiality has reduced the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole. 
D) check the auditing standard guidelines for the determination of performance materiality.

Misstatements that impact a user's decision-making process for a reason other than its magnitude constitute ________ materiality.

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 certain situations arise.Which situation is NOT included in those that AU-C 200.A22 presents?

In the context of identifying fraud, which of the following describes theft of inventory by employees or others?

The use of performance materiality should:

The determination of when audit procedures will be performed is primarily dependent upon _______.

Performance of detailed tests of controls and substantive testing is typically accomplished in the ____________ phase of the audit.

What is the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated?

What type of direct inquiry does an auditor make of the audit committee regarding the potential for fraud?

Auditors may decide to perform some tests of controls or not perform any tests of controls, if inherent risk is assessed as ________.

A detection risk of 1.5 or 150% means _______.

Which of the following is a negative factor influencing client acceptance and retention with respect to competence issues?

What audit procedures are designed to detect material misstatements at the assertion level?

In addition to income before income taxes, another acceptable benchmark(s) for private company audits is(are) _______.

Which of the following involves gaining an understanding of the client, identifying risk factors, developing an audit strategy, and setting planning materiality?

Timing differences such as bringing forward the recognition of revenues and delaying the recognition of expenses are examples of ________.

Which of the following are examples of fraudulent financial reporting?

The audit risk model can also be used for quantitative analysis in which all risks are stated as a percentage ranging from _______.

Suppose auditors assess inherent risk and control risk as low, 25% and 8% respectively.If auditors want to keep audit risk relatively low at 5%, then what is detection risk?

In an audit situation, which of the following risks can be reduced to zero?

Martin Inc.is being audited by the firm MNE and Associates.MNE's auditors decide that $100 million is the planning materiality and $50 million is the appropriate performance materiality at the account level.If all of Martin's account balances are below $50 million, the auditors will:

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

Misstatements that impact a user's decision-making process for a reason other than its magnitude constitute ________ materiality.

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 certain situations arise.Which situation is NOT included in those that AU-C 200.A22 presents?

In the context of identifying fraud, which of the following describes theft of inventory by employees or others?

The use of performance materiality should:

The determination of when audit procedures will be performed is primarily dependent upon _______.

Performance of detailed tests of controls and substantive testing is typically accomplished in the ____________ phase of the audit.

What is the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated?

What type of direct inquiry does an auditor make of the audit committee regarding the potential for fraud?

Auditors may decide to perform some tests of controls or not perform any tests of controls, if inherent risk is assessed as ________.

A detection risk of 1.5 or 150% means _______.

Which of the following is a negative factor influencing client acceptance and retention with respect to competence issues?

What audit procedures are designed to detect material misstatements at the assertion level?

In addition to income before income taxes, another acceptable benchmark(s) for private company audits is(are) _______.

Which of the following involves gaining an understanding of the client, identifying risk factors, developing an audit strategy, and setting planning materiality?

Timing differences such as bringing forward the recognition of revenues and delaying the recognition of expenses are examples of ________.

Which of the following are examples of fraudulent financial reporting?

The audit risk model can also be used for quantitative analysis in which all risks are stated as a percentage ranging from _______.

Suppose auditors assess inherent risk and control risk as low, 25% and 8% respectively.If auditors want to keep audit risk relatively low at 5%, then what is detection risk?

In an audit situation, which of the following risks can be reduced to zero?

Martin Inc.is being audited by the firm MNE and Associates.MNE's auditors decide that $100 million is the planning materiality and $50 million is the appropriate performance materiality at the account level.If all of Martin's account balances are below $50 million, the auditors will:

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