Question 1

List the audit procedures outlined in CAS 240 that the auditor should perform to address the risk of management override of controls.

Accepted Answer

Audit procedures performed by auditors t

Question 2

PA has set acceptable audit risk at 5% and determined that inherent risk and control risk is at 100%.What is the detection risk?

Accepted Answer

A) 5% 
B) 50% 
C) 95% 
D) 20% 
A) 5% 
B) 50% 
C) 95% 
D) 20%

Question 3

Acceptable audit risk is a measure of

Accepted Answer

A) the auditor's assessment of the likelihood that a material misstatement might occur in the first place. 
B) the probability that the financial statements contain errors. 
C) how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed. 
D) the probability that errors in the financial statements that were not detected by the internal controls of the firm are not detected by the auditor. 
A) the auditor's assessment of the likelihood that a material misstatement might occur in the first place. 
B) the probability that the financial statements contain errors. 
C) how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed. 
D) the probability that errors in the financial statements that were not detected by the internal controls of the firm are not detected by the auditor.

Question 4

CAS 315.28 requires the auditor to consider various factors to identify significant risks.List the factors the auditors are required to consider.

Accepted Answer

Factors that auditors consider during th

Question 5

When a different extent of evidence is needed for the various cycles,the difference is caused by

Accepted Answer

A) errors in the client's accounting system. 
B) the client's need to achieve an unqualified opinion. 
C) the auditor's need to follow GAAS. 
D) the auditor's expectations of errors and assessment of internal control. 
A) errors in the client's accounting system. 
B) the client's need to achieve an unqualified opinion. 
C) the auditor's need to follow GAAS. 
D) the auditor's expectations of errors and assessment of internal control.

Question 6

A)Explain how auditors use the audit risk model when planning an audit.B)Describe the audit risk model and each of its components.

Accepted Answer

A)The audit risk model is used primarily

Question 7

What are the components of risk of material misstatement at the assertion level?

Accepted Answer

The components of risk of material misst

Question 8

The auditor set acceptable audit risk at 5%,inherent risk at 100%,and control risk at 50%,and determined a detection risk of 10%.If control risk had been 80%,detection risk would be about

Accepted Answer

A) 16%. 
B) 10%. 
C) 6%. 
D) 5%. 
A) 16%. 
B) 10%. 
C) 6%. 
D) 5%.

Question 9

When external users place heavy reliance on the financial statements,it is appropriate that

Accepted Answer

A) acceptable audit risk be increased. 
B) inherent risk be decreased. 
C) inherent risk be increased. 
D) acceptable audit risk be decreased. 
A) acceptable audit risk be increased. 
B) inherent risk be decreased. 
C) inherent risk be increased. 
D) acceptable audit risk be decreased.

Question 10

Assessing design effectiveness and conducting tests of controls are required when the auditor

Accepted Answer

A) chooses to set control risk below 100 percent and relies on the controls. 
B) chooses to set control risk below 100 percent even if there is no reliance placed on controls. 
C) is planning the audit. 
D) tests the design effectiveness. 
A) chooses to set control risk below 100 percent and relies on the controls. 
B) chooses to set control risk below 100 percent even if there is no reliance placed on controls. 
C) is planning the audit. 
D) tests the design effectiveness.

Question 11

Fraud risk factors are examples of factors that increase the risk of fraud.Which of the following is an example of a management "opportunities" risk factor?

Accepted Answer

A) The company has lost a major account and income is falling. 
B) Two major competitors have gone bankrupt as margins decline in the industry. 
C) The Chief Executive Officer owns forty percent of the outstanding share capital. 
D) New accounting standards provide three different methods for valuing financial instruments. 
A) The company has lost a major account and income is falling. 
B) Two major competitors have gone bankrupt as margins decline in the industry. 
C) The Chief Executive Officer owns forty percent of the outstanding share capital. 
D) New accounting standards provide three different methods for valuing financial instruments.

Question 12

Which of the following is a factor that relates to "attitudes or rationalization" to commit fraudulent financial reporting?

Accepted Answer

A) significant accounting estimates involving subjective judgments 
B) excessive pressure for management to meet debt repayment requirements 
C) management's practice of making overly aggressive forecasts 
D) high turnover of accounting,internal audit,and information technology staff 
A) significant accounting estimates involving subjective judgments 
B) excessive pressure for management to meet debt repayment requirements 
C) management's practice of making overly aggressive forecasts 
D) high turnover of accounting,internal audit,and information technology staff

Question 13

A PA firm can experience high levels of business risk if the audit firm

Accepted Answer

A) does a poor job preparing client risk profiles. 
B) pays its employees wages that are not in line with the market. 
C) experiences significant litigation or has clients declare bankruptcy. 
D) has a generous vacation policy for its staff. 
A) does a poor job preparing client risk profiles. 
B) pays its employees wages that are not in line with the market. 
C) experiences significant litigation or has clients declare bankruptcy. 
D) has a generous vacation policy for its staff.

Question 14

Why does an auditor perform audit risk assessment procedures? What activities are included in risk assessment procedures?

Accepted Answer

The auditor performs risk assessment pro

Question 15

When the auditor has the same level of willingness to risk that material errors will exist after the audit is finished for all five cycles,

Accepted Answer

A) the same amount of evidence will be gathered for each cycle. 
B) a different extent of evidence is needed for various cycles. 
C) he/she has not followed generally accepted auditing standards. 
D) the level for each cycle must be no more than 2% so that the entire audit does not exceed 10%. 
A) the same amount of evidence will be gathered for each cycle. 
B) a different extent of evidence is needed for various cycles. 
C) he/she has not followed generally accepted auditing standards. 
D) the level for each cycle must be no more than 2% so that the entire audit does not exceed 10%.

Question 16

Mugsy Brights Limited (MBL)is a private company in Winnipeg that sells mugs,jars,and bottles in a variety of colours,sizes,and materials.MBL has been owned by four equal owners since its inception.The owners have different skills-creative design,marketing,finance,and information systems.The company attributes much of its success to the use of materials that can be easily shipped without breaking,and unique designs that appeal to a variety of buyers,particularly commercial buyers who purchase for restaurants,or for businesses who choose to advertise their business by giving away or selling regular or travel mugs.
The owners meet formally every month and have informal meetings two or three times per week to discuss particular clients or new approaches.About a quarter of the company's sales are completed via the company's secure website,while the remainder are by telephone or purchase order.MBL works with distributors of kitchenware,selling wholesale to hundreds of outlets in Canada.Most of these sales are done over the phone,although a salesperson does spend some time in major cities across the country visiting some of the large customers and helping with shelf layout and marketing to the ultimate consumers for larger distributors.These efforts have resulted in gradually increasing market share for the company.
All sales are recorded in the accounting software package used by the company.The accounting manager reports directly to one of the owners,and there are two other employees in the accounting department.Password controls are used to limit functions that are accessible by employees.For example,only the controller can implement wage rate increases or product price increases (which are reviewed and approved by the owner responsible for marketing).Two owners are required to sign cheques,and do so with source documents attached.Similarly,two owners are required to approve new employees.
All manufacturing is outsourced to local producers who work with different materials.For example,a different supplier handles steel mugs versus plastics or glass.Ceramics are rarely used as they are quite breakable,whereas some forms of glass are very durable.MBL does not hold any inventory,as manufacturing is all done to order.However,as there have been some collection problems from customers,the company has had to go to the maximum of its line of credit and has no additional borrowing capacity available.It is waiting for the results of the audited financial statements to approach its bank for an increase in its line of credit.
Internet sales are prepared (via credit card),while sales to distributors are net thirty.The company has an April year end.Following are extracts from the annual financial statements.
   
Required:A)What acceptable audit risk would you assign to the company? Why? [Tip: Do some calculations and consider client business risk.] B)Calculate preliminary materiality.Justify your decision of materiality base and choice of materiality.

Accepted Answer

A)
 @#IMG-DLM& 
Client business risk should be set

Question 17

If acceptable audit risk is increased,what happens to detection risk?

Accepted Answer

A) It stays the same. 
B) It increases. 
C) It changes based upon the audit procedures conducted. 
D) It decreases. 
A) It stays the same. 
B) It increases. 
C) It changes based upon the audit procedures conducted. 
D) It decreases.

Question 18

Below are four situations that involve the audit risk model as it is used for planning audit evidence requirements in the audit of inventory.For each situation,calculate planned detection risk.
SITUATION

Accepted Answer

1.1%.
2.10

Question 19

List the audit procedures outlined in CAS 240 that the auditor should perform to assess fraud risk.

Accepted Answer

Audit procedures performed by auditors t

Question 20

Acceptable audit risk is ordinarily set by the auditor during planning and

Accepted Answer

A) held constant for each major cycle and account. 
B) held constant for each major cycle but varies by account. 
C) varies by each major cycle and by each account. 
D) varies by each major cycle but is constant by account. 
A) held constant for each major cycle and account. 
B) held constant for each major cycle but varies by account. 
C) varies by each major cycle and by each account. 
D) varies by each major cycle but is constant by account.

List the audit procedures outlined in CAS 240 that the auditor should perform to address the risk of management override of controls.

PA has set acceptable audit risk at 5% and determined that inherent risk and control risk is at 100%.What is the detection risk?

Acceptable audit risk is a measure of

CAS 315.28 requires the auditor to consider various factors to identify significant risks.List the factors the auditors are required to consider.

When a different extent of evidence is needed for the various cycles,the difference is caused by

A)Explain how auditors use the audit risk model when planning an audit.B)Describe the audit risk model and each of its components.

What are the components of risk of material misstatement at the assertion level?

The auditor set acceptable audit risk at 5%,inherent risk at 100%,and control risk at 50%,and determined a detection risk of 10%.If control risk had been 80%,detection risk would be about

When external users place heavy reliance on the financial statements,it is appropriate that

Assessing design effectiveness and conducting tests of controls are required when the auditor

Fraud risk factors are examples of factors that increase the risk of fraud.Which of the following is an example of a management "opportunities" risk factor?

Which of the following is a factor that relates to "attitudes or rationalization" to commit fraudulent financial reporting?

A PA firm can experience high levels of business risk if the audit firm

Why does an auditor perform audit risk assessment procedures? What activities are included in risk assessment procedures?

When the auditor has the same level of willingness to risk that material errors will exist after the audit is finished for all five cycles,

If acceptable audit risk is increased,what happens to detection risk?

Below are four situations that involve the audit risk model as it is used for planning audit evidence requirements in the audit of inventory.For each situation,calculate planned detection risk. SITUATION

List the audit procedures outlined in CAS 240 that the auditor should perform to assess fraud risk.

Acceptable audit risk is ordinarily set by the auditor during planning and

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 7: Assessing the Risk of Material Misstatement

List the audit procedures outlined in CAS 240 that the auditor should perform to address the risk of management override of controls.

PA has set acceptable audit risk at 5% and determined that inherent risk and control risk is at 100%.What is the detection risk?

Acceptable audit risk is a measure of

CAS 315.28 requires the auditor to consider various factors to identify significant risks.List the factors the auditors are required to consider.

When a different extent of evidence is needed for the various cycles,the difference is caused by

A)Explain how auditors use the audit risk model when planning an audit.B)Describe the audit risk model and each of its components.

What are the components of risk of material misstatement at the assertion level?

The auditor set acceptable audit risk at 5%,inherent risk at 100%,and control risk at 50%,and determined a detection risk of 10%.If control risk had been 80%,detection risk would be about

When external users place heavy reliance on the financial statements,it is appropriate that

Assessing design effectiveness and conducting tests of controls are required when the auditor

Fraud risk factors are examples of factors that increase the risk of fraud.Which of the following is an example of a management "opportunities" risk factor?

Which of the following is a factor that relates to "attitudes or rationalization" to commit fraudulent financial reporting?

A PA firm can experience high levels of business risk if the audit firm

Why does an auditor perform audit risk assessment procedures? What activities are included in risk assessment procedures?

When the auditor has the same level of willingness to risk that material errors will exist after the audit is finished for all five cycles,

If acceptable audit risk is increased,what happens to detection risk?

Below are four situations that involve the audit risk model as it is used for planning audit evidence requirements in the audit of inventory.For each situation,calculate planned detection risk. SITUATION

List the audit procedures outlined in CAS 240 that the auditor should perform to assess fraud risk.

Acceptable audit risk is ordinarily set by the auditor during planning and

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters