Question 1

From a definitional perspective, information is considered material if it _______.

Accepted Answer

A) impacts the decision-making process of users of the financial statements 
B) is diverse in nature 
C) only includes qualitative evidence 
D) includes income statement benchmarks 
A) impacts the decision-making process of users of the financial statements 
B) is diverse in nature 
C) only includes qualitative evidence 
D) includes income statement benchmarks

Question 2

The second stage in audit risk assessment is to _______.

Accepted Answer

A) gain an understanding of the client's system of internal controls 
B) prevent fraud 
C) use subjective measurement in financial statements 
D) focus on the significant transactions outside of the client's normal course of business 
A) gain an understanding of the client's system of internal controls 
B) prevent fraud 
C) use subjective measurement in financial statements 
D) focus on the significant transactions outside of the client's normal course of business

Question 3

Which of the following is/are the primary means of communication for gathering information while assessing management integrity?

Accepted Answer

A) communication with the previous auditor, only 
B) communication with client personnel and with the client's industry peers, only 
C) communication with the client's industry peers, only 
D) communication with the client personnel, the client's industry peers and the previous auditor 
A) communication with the previous auditor, only 
B) communication with client personnel and with the client's industry peers, only 
C) communication with the client's industry peers, only 
D) communication with the client personnel, the client's industry peers and the previous auditor

Question 4

Which of the following processes is associated with the reporting phase?

Accepted Answer

A) Conclusions are drawn when testing the client's controls. 
B) Decisions are made about extent and timing of detailed testing of account balances. 
C) Risk assessment procedures are performed to ensure appropriate attention is paid to transactions. 
D) Factors are identified that may impact the risk of a material misstatement. 
A) Conclusions are drawn when testing the client's controls. 
B) Decisions are made about extent and timing of detailed testing of account balances. 
C) Risk assessment procedures are performed to ensure appropriate attention is paid to transactions. 
D) Factors are identified that may impact the risk of a material misstatement.

Question 5

The auditor brainstorming session serves as an opportunity for _______.

Accepted Answer

A) more senior members of the audit team to share important information about the client with new members of the audit team 
B) the audit team to share stories about other clients 
C) the audit team to relax and not worry about documentation 
D) partners to impress staff members within the accounting firm 
A) more senior members of the audit team to share important information about the client with new members of the audit team 
B) the audit team to share stories about other clients 
C) the audit team to relax and not worry about documentation 
D) partners to impress staff members within the accounting firm

Question 6

What should auditors aim for when working with audit risk?

Accepted Answer

A) Reducing audit risk to an acceptably low level 
B) Eliminating audit risk 
C) Increasing audit risk to an acceptably high level 
D) Stabilizing audit risk from year to year in order to eliminate audit procedures 
A) Reducing audit risk to an acceptably low level 
B) Eliminating audit risk 
C) Increasing audit risk to an acceptably high level 
D) Stabilizing audit risk from year to year in order to eliminate audit procedures

Question 7

In the substantive approach, if there is no internal control in place, the auditors _______.

Accepted Answer

A) assess RMM as high since both inherent and control risk are high 
B) assess inherent and detective risk as high 
C) assess control and detective risk as high 
D) issue a qualified opinion 
A) assess RMM as high since both inherent and control risk are high 
B) assess inherent and detective risk as high 
C) assess control and detective risk as high 
D) issue a qualified opinion

Question 8

What is the first stage of any audit?

Accepted Answer

A) Client acceptance or a continuance decision 
B) Risk assessment 
C) Reporting 
D) Risk response 
A) Client acceptance or a continuance decision 
B) Risk assessment 
C) Reporting 
D) Risk response

Question 9

The general type of fraud that involves some form of theft is typically known as _______.

Accepted Answer

A) misappropriation of assets 
B) improper asset valuation 
C) fictitious sales 
D) unrecorded liabilities 
A) misappropriation of assets 
B) improper asset valuation 
C) fictitious sales 
D) unrecorded liabilities

Question 10

Auditors gather information through communication with individuals internal and external to the prospective client.Which of the following would be internal to the client?

Accepted Answer

A) Communication with client personnel 
B) Communication with third parties 
C) Communication with the client's industry peers 
D) Communication with the previous auditor 
A) Communication with client personnel 
B) Communication with third parties 
C) Communication with the client's industry peers 
D) Communication with the previous auditor

Question 11

A significant risk is an identified and assessed risk of material misstatement that, in the auditor's judgment, requires special audit consideration.Which of the following would be classified as a significant risk?

Accepted Answer

A) A risk related to a significant economic or accounting development. 
B) A risk related to transactions for a simple operating lease, like you sign when you rent an apartment. 
C) A risk that does not involve a related party transaction. 
D) A risk related to a transaction that involves a recording error, but was not intentional, like a fraud. 
A) A risk related to a significant economic or accounting development. 
B) A risk related to transactions for a simple operating lease, like you sign when you rent an apartment. 
C) A risk that does not involve a related party transaction. 
D) A risk related to a transaction that involves a recording error, but was not intentional, like a fraud.

Question 12

Which of the following was one of the largest accounting firms in the world during the 1990's and early 2000's?

Accepted Answer

A) Arthur Andersen 
B) Laventhol & Horwath 
C) Arthur Young & Co 
D) Supreme, Inc. 
A) Arthur Andersen 
B) Laventhol & Horwath 
C) Arthur Young & Co 
D) Supreme, Inc.

Question 13

Which of the following are a special circumstances or unusual risk factors that influences client acceptance and retention decisions?

Accepted Answer

A) Profitability issues 
B) Firm has an affiliation with a specialist 
C) Firm does not have the expertise needed to provide services requested by client 
D) Conflict of interest issues 
A) Profitability issues 
B) Firm has an affiliation with a specialist 
C) Firm does not have the expertise needed to provide services requested by client 
D) Conflict of interest issues

Question 14

Which of the following would be considered as internal information gathered primarily about the integrity of client management?

Accepted Answer

A) Communication with client personnel 
B) Communication with the client's bankers and lawyers 
C) Communication with the client's industry peers 
D) A review of articles in industry trade journals 
A) Communication with client personnel 
B) Communication with the client's bankers and lawyers 
C) Communication with the client's industry peers 
D) A review of articles in industry trade journals

Question 15

MNE and Associates used the benchmark of 5% of income (earnings) before income tax and came up with $9.5 million as their planning materiality for Garden, Inc.MNE also determined that planning materiality using a benchmark of 1% total assets resulted in $23 million.How should MNE decide which planning materiality amount to use?

Accepted Answer

A) Ultimately, the auditors must use their professional judgment to decide on the planning materiality amount, along with qualitative factors in the final assessment. 
B) The auditors would use the largest amount in order to detect larger material misstatements. 
C) The auditors would use the smaller amount in order to keep with the principle of conservatism. 
D) The auditors would average the two amounts because the use of two benchmarks provides greater precision. 
A) Ultimately, the auditors must use their professional judgment to decide on the planning materiality amount, along with qualitative factors in the final assessment. 
B) The auditors would use the largest amount in order to detect larger material misstatements. 
C) The auditors would use the smaller amount in order to keep with the principle of conservatism. 
D) The auditors would average the two amounts because the use of two benchmarks provides greater precision.

Question 16

What term refers to the determination of the amount of time to spend testing the client's internal controls and conducting detailed testing of transactions and account balances?

Accepted Answer

A) Audit strategy 
B) Risk response 
C) Reporting 
D) Risk assessment 
A) Audit strategy 
B) Risk response 
C) Reporting 
D) Risk assessment

Question 17

Where does the responsibility for preventing and detecting fraud rest?

Accepted Answer

A) With client management and those charged with governance 
B) With the auditors 
C) Solely with the CEO 
D) Solely with the CFO 
A) With client management and those charged with governance 
B) With the auditors 
C) Solely with the CEO 
D) Solely with the CFO

Question 18

Which of the following statements is true?

Accepted Answer

A) Inherent risk is the susceptibility of an assertion to material misstatement before consideration of any related controls. 
B) Inherent risk assessment is affected by internal factors but not external factors. 
C) It is possible to eliminate audit risk. 
D) During the risk assessment phase, auditors will perform audit procedures to identify transactions and accounts where the risk of material misstatement is lowest. 
A) Inherent risk is the susceptibility of an assertion to material misstatement before consideration of any related controls. 
B) Inherent risk assessment is affected by internal factors but not external factors. 
C) It is possible to eliminate audit risk. 
D) During the risk assessment phase, auditors will perform audit procedures to identify transactions and accounts where the risk of material misstatement is lowest.

Question 19

The auditor may spend more time testing the existence assertion of recorded inventory in all of the following EXCEPT _______.

Accepted Answer

A) office supply stores 
B) jewelry stores 
C) the Apple store that sell iPhones and iPads 
D) exclusive sunglass stores (e.g., selling Oakley and Ray Ban sunglasses) 
A) office supply stores 
B) jewelry stores 
C) the Apple store that sell iPhones and iPads 
D) exclusive sunglass stores (e.g., selling Oakley and Ray Ban sunglasses)

Question 20

Which of the following is not a fraud risk factor?

Accepted Answer

A) Amount of ethics training provided by the company 
B) An incentive or pressure to commit fraud 
C) An opportunity to commit fraud 
D) Rationalization to justify fraudulent actions 
A) Amount of ethics training provided by the company 
B) An incentive or pressure to commit fraud 
C) An opportunity to commit fraud 
D) Rationalization to justify fraudulent actions

From a definitional perspective, information is considered material if it _______.

The second stage in audit risk assessment is to _______.

Which of the following is/are the primary means of communication for gathering information while assessing management integrity?

Which of the following processes is associated with the reporting phase?

The auditor brainstorming session serves as an opportunity for _______.

What should auditors aim for when working with audit risk?

In the substantive approach, if there is no internal control in place, the auditors _______.

What is the first stage of any audit?

The general type of fraud that involves some form of theft is typically known as _______.

Auditors gather information through communication with individuals internal and external to the prospective client.Which of the following would be internal to the client?

A significant risk is an identified and assessed risk of material misstatement that, in the auditor's judgment, requires special audit consideration.Which of the following would be classified as a significant risk?

Which of the following was one of the largest accounting firms in the world during the 1990's and early 2000's?

Which of the following are a special circumstances or unusual risk factors that influences client acceptance and retention decisions?

Which of the following would be considered as internal information gathered primarily about the integrity of client management?

What term refers to the determination of the amount of time to spend testing the client's internal controls and conducting detailed testing of transactions and account balances?

Where does the responsibility for preventing and detecting fraud rest?

Which of the following statements is true?

The auditor may spend more time testing the existence assertion of recorded inventory in all of the following EXCEPT _______.

Which of the following is not a fraud risk factor?

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

From a definitional perspective, information is considered material if it _______.

The second stage in audit risk assessment is to _______.

Which of the following is/are the primary means of communication for gathering information while assessing management integrity?

Which of the following processes is associated with the reporting phase?

The auditor brainstorming session serves as an opportunity for _______.

What should auditors aim for when working with audit risk?

In the substantive approach, if there is no internal control in place, the auditors _______.

What is the first stage of any audit?

The general type of fraud that involves some form of theft is typically known as _______.

Auditors gather information through communication with individuals internal and external to the prospective client.Which of the following would be internal to the client?

A significant risk is an identified and assessed risk of material misstatement that, in the auditor's judgment, requires special audit consideration.Which of the following would be classified as a significant risk?

Which of the following was one of the largest accounting firms in the world during the 1990's and early 2000's?

Which of the following are a special circumstances or unusual risk factors that influences client acceptance and retention decisions?

Which of the following would be considered as internal information gathered primarily about the integrity of client management?

What term refers to the determination of the amount of time to spend testing the client's internal controls and conducting detailed testing of transactions and account balances?

Where does the responsibility for preventing and detecting fraud rest?

Which of the following statements is true?

The auditor may spend more time testing the existence assertion of recorded inventory in all of the following EXCEPT _______.

Which of the following is not a fraud risk factor?

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