Question 1

Which of the following are examples of attitudes and rationalizations used to justify a fraud?

Accepted Answer

A) Employees placing low priority on the entity's value or ethical standards 
B) A poor attitude regarding compliance with accounting regulations 
C) Rationalization that other companies make the same inappropriate accounting choices 
D) A lack of focus on profit making and/or the maximization of stock price 
A) Employees placing low priority on the entity's value or ethical standards 
B) A poor attitude regarding compliance with accounting regulations 
C) Rationalization that other companies make the same inappropriate accounting choices 
D) A lack of focus on profit making and/or the maximization of stock price

Question 2

If auditors determine a higher planning materiality level, they will plan to gather _______ extensive audit evidence.

Accepted Answer

A) less 
B) more 
C) a greater proportion of 
D) complex 
A) less 
B) more 
C) a greater proportion of 
D) complex

Question 3

What is the first stage in audit risk assessment?

Accepted Answer

A) Identification of accounts and related assertions most at risk of material misstatement, referred to as inherent risk 
B) Performance of audit procedures to identify transactions and accounts where the risk of material misstatement is lowest 
C) Test the existence assertion of recorded inventory 
D) Determination of the effectiveness of the client's system of internal controls 
A) Identification of accounts and related assertions most at risk of material misstatement, referred to as inherent risk 
B) Performance of audit procedures to identify transactions and accounts where the risk of material misstatement is lowest 
C) Test the existence assertion of recorded inventory 
D) Determination of the effectiveness of the client's system of internal controls

Question 4

What is the second phase of the audit?

Accepted Answer

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

Question 5

Information is considered qualitatively material if it _______.

Accepted Answer

A) affects a user's decision-making process for a reason other than its magnitude 
B) exceeds the dollar magnitude of an auditor's planning materiality assessment 
C) can be presented as a percentage of net income 
D) includes liquidity ratios of interest to bond holders 
A) affects a user's decision-making process for a reason other than its magnitude 
B) exceeds the dollar magnitude of an auditor's planning materiality assessment 
C) can be presented as a percentage of net income 
D) includes liquidity ratios of interest to bond holders

Question 6

Higher inherent risk traits are found where _______.

Accepted Answer

A) transactions or account balances are derived from significant estimates 
B) transactions or account balances are easily confirmed with reliable sources 
C) the client's industry is thriving 
D) the client's location has minimal risk of being affected by a natural disaster 
A) transactions or account balances are derived from significant estimates 
B) transactions or account balances are easily confirmed with reliable sources 
C) the client's industry is thriving 
D) the client's location has minimal risk of being affected by a natural disaster

Question 7

Information is considered quantitatively material if it exceeds the magnitude of an auditor's _______ materiality assessment.

Accepted Answer

A) planning 
B) performance 
C) qualitative 
D) quantitative 
A) planning 
B) performance 
C) qualitative 
D) quantitative

Question 8

What are the primary procedures auditors use in the fraud risk assessment process?

Accepted Answer

A) Brainstorming 
B) Accuracy checking 
C) Documentation 
D) Flowcharting 
A) Brainstorming 
B) Accuracy checking 
C) Documentation 
D) Flowcharting

Question 9

A majority of companies in the Eilifsen and Messier (2015) study used _____________ percent of income before taxes to determine planning materiality.

Accepted Answer

A) 5 
B) 10 
C) 15 
D) 2 
A) 5 
B) 10 
C) 15 
D) 2

Question 10

Which of the following are examples of opportunities that increase the risk that a fraud may have been perpetrated?

Accepted Answer

A) Accounts that rely on estimates and judgment 
B) A high volume of transactions close to year-end 
C) Significant adjusting entries and reversals after year-end 
D) A low turnover of staff with accounting responsibilities 
A) Accounts that rely on estimates and judgment 
B) A high volume of transactions close to year-end 
C) Significant adjusting entries and reversals after year-end 
D) A low turnover of staff with accounting responsibilities

Question 11

The risk response phase involves the _______.

Accepted Answer

A) performance of detailed tests of controls and substantive testing 
B) evaluation of the results of the detailed testing 
C) performing of a risk and materiality assessment 
D) development of an audit strategy 
A) performance of detailed tests of controls and substantive testing 
B) evaluation of the results of the detailed testing 
C) performing of a risk and materiality assessment 
D) development of an audit strategy

Question 12

Throughout all phases of the audit, auditors should keep questions in mind when gathering audit evidence.Which is of the following is an example?

Accepted Answer

A) Do we need to perform more audit procedures? 
B) If management offers to take us to eat lunch during the audit, should we assume this is breakdown in controls? 
C) Should we assume that client management is dishonest until proven otherwise? 
D) Should we assume that any information from management and those charged with governance is correct? 
A) Do we need to perform more audit procedures? 
B) If management offers to take us to eat lunch during the audit, should we assume this is breakdown in controls? 
C) Should we assume that client management is dishonest until proven otherwise? 
D) Should we assume that any information from management and those charged with governance is correct?

Question 13

In the substantive approach, if there is an internal control in place, the auditors may _______.

Accepted Answer

A) test the effectiveness of the internal control 
B) issue a qualified opinion 
C) assess all procedures in the audit as having high audit risk 
D) withdraw from the audit 
A) test the effectiveness of the internal control 
B) issue a qualified opinion 
C) assess all procedures in the audit as having high audit risk 
D) withdraw from the audit

Question 14

The engagement letter does NOT include _______.

Accepted Answer

A) the requirement that the auditor have access to all social security numbers of client employees in order to perform background checks 
B) an explanation of the scope of the audit 
C) the timing of the completion of various aspects of the audit 
D) an overview of the client's responsibility for the preparation of the financial statements 
A) the requirement that the auditor have access to all social security numbers of client employees in order to perform background checks 
B) an explanation of the scope of the audit 
C) the timing of the completion of various aspects of the audit 
D) an overview of the client's responsibility for the preparation of the financial statements

Question 15

When is it necessary to send a new engagement letter to a continuing client?

Accepted Answer

A) Only when the terms of the engagement have changed. 
B) Every year. 
C) On a quarterly basis. 
D) Along with the CPA's bill for the first year of services. 
A) Only when the terms of the engagement have changed. 
B) Every year. 
C) On a quarterly basis. 
D) Along with the CPA's bill for the first year of services.

Question 16

The new auditor should communicate with the previous auditor in order to _______.

Accepted Answer

A) gain an understanding about the reasons for the change of auditors 
B) get all the passwords and logins to the client software 
C) get the previous auditor's work papers 
D) serve them with an official change of auditor notice 
A) gain an understanding about the reasons for the change of auditors 
B) get all the passwords and logins to the client software 
C) get the previous auditor's work papers 
D) serve them with an official change of auditor notice

Question 17

MNE and Associates is auditing Blanchard Company.MNE has decided to use 5% of income (earnings) before income tax as a benchmark.If income (earnings) before income tax was $33 million, what would be the amount of planning materiality?

Accepted Answer

A) $1.65 million 
B) $31.43 million 
C) $660,000 
D) $34.65 million 
A) $1.65 million 
B) $31.43 million 
C) $660,000 
D) $34.65 million

Question 18

Auditors make preliminary risk assessments while _______.

Accepted Answer

A) planning the audit 
B) drawing conclusions about client controls, transactions, and account balances 
C) planning to rely on the client's system of internal controls 
D) testing the account balances and transactions 
A) planning the audit 
B) drawing conclusions about client controls, transactions, and account balances 
C) planning to rely on the client's system of internal controls 
D) testing the account balances and transactions

Question 19

In the context of an auditor's attitude, what basic assumption does maintaining professional skepticism entail?

Accepted Answer

A) The client management is not always honest. 
B) The client management is not always dishonest. 
C) The client management is always dishonest. 
D) The client management is always honest. 
A) The client management is not always honest. 
B) The client management is not always dishonest. 
C) The client management is always dishonest. 
D) The client management is always honest.

Question 20

The risk of material misstatement is a function of _______.

Accepted Answer

A) inherent risk and control risk 
B) control risk and deterrent risk 
C) inherent risk and deterrent risk 
A) inherent risk and control risk 
B) control risk and deterrent risk 
C) inherent risk and deterrent risk

Which of the following are examples of attitudes and rationalizations used to justify a fraud?

If auditors determine a higher planning materiality level, they will plan to gather _______ extensive audit evidence.

What is the first stage in audit risk assessment?

What is the second phase of the audit?

Information is considered qualitatively material if it _______.

Higher inherent risk traits are found where _______.

Information is considered quantitatively material if it exceeds the magnitude of an auditor's _______ materiality assessment.

What are the primary procedures auditors use in the fraud risk assessment process?

A majority of companies in the Eilifsen and Messier (2015) study used _____________ percent of income before taxes to determine planning materiality.

Which of the following are examples of opportunities that increase the risk that a fraud may have been perpetrated?

The risk response phase involves the _______.

Throughout all phases of the audit, auditors should keep questions in mind when gathering audit evidence.Which is of the following is an example?

In the substantive approach, if there is an internal control in place, the auditors may _______.

The engagement letter does NOT include _______.

When is it necessary to send a new engagement letter to a continuing client?

The new auditor should communicate with the previous auditor in order to _______.

MNE and Associates is auditing Blanchard Company.MNE has decided to use 5% of income (earnings) before income tax as a benchmark.If income (earnings) before income tax was $33 million, what would be the amount of planning materiality?

Auditors make preliminary risk assessments while _______.

In the context of an auditor's attitude, what basic assumption does maintaining professional skepticism entail?

The risk of material misstatement is a function of _______.

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

Which of the following are examples of attitudes and rationalizations used to justify a fraud?

If auditors determine a higher planning materiality level, they will plan to gather _______ extensive audit evidence.

What is the first stage in audit risk assessment?

What is the second phase of the audit?

Information is considered qualitatively material if it _______.

Higher inherent risk traits are found where _______.

Information is considered quantitatively material if it exceeds the magnitude of an auditor's _______ materiality assessment.

What are the primary procedures auditors use in the fraud risk assessment process?

A majority of companies in the Eilifsen and Messier (2015) study used _____________ percent of income before taxes to determine planning materiality.

Which of the following are examples of opportunities that increase the risk that a fraud may have been perpetrated?

The risk response phase involves the _______.

Throughout all phases of the audit, auditors should keep questions in mind when gathering audit evidence.Which is of the following is an example?

In the substantive approach, if there is an internal control in place, the auditors may _______.

The engagement letter does NOT include _______.

When is it necessary to send a new engagement letter to a continuing client?

The new auditor should communicate with the previous auditor in order to _______.

MNE and Associates is auditing Blanchard Company.MNE has decided to use 5% of income (earnings) before income tax as a benchmark.If income (earnings) before income tax was $33 million, what would be the amount of planning materiality?

Auditors make preliminary risk assessments while _______.

In the context of an auditor's attitude, what basic assumption does maintaining professional skepticism entail?

The risk of material misstatement is a function of _______.

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