Question 1

Inherent and control risks are risk controlled by the auditor.

Accepted Answer

A) True 
 B)False  True

Question 2

If tolerable misstatement for accounts payable is $1,000, the auditor would need to obtain more audit evidence for that account than if tolerable misstatement were $100,000.

Accepted Answer

A) True 
 B)False  True

Question 3

Importance of materiality judgments.
Explain the differences between performance materiality and tolerable misstatement.

Accepted Answer

Performance materiality refers to the amount or amounts set by the auditor at less than the materiality level for the financial statements as a whole or for particular classes of transactions, account balances, or disclosures. If the auditor plans the audit only to detect individual material misstatements, the auditor would be overlooking the fact that the aggregate of individually immaterial misstatements can cause the financial statements as a whole to be materially misstated. Performance materiality is used for assessing the risks of material misstatement and determining the nature, timing, and extent of audit procedures to perform during the audit opinion formulation process. If performance materiality is set too high, the auditor might not perform sufficient procedures to detect material misstatements in the financial statements. If performance materiality is set too low, the auditor might perform more substantive procedures than necessary. Performance materiality is different from, but relates to, the concept of tolerable misstatement.
Tolerable misstatement is the amount of misstatement in an account balance that the auditor could tolerate and still not judge the underlying account balance to be materially misstated. Tolerable misstatement is the application of performance materiality to a particular sampling procedure, so it is always less than or equal to performance materiality.

Question 4

Only public companies have to be concerned with business risk.

Accepted Answer

A) True 
 B)False

Question 5

Auditors need to choose materiality amounts carefully because once a materiality judgment has been made, it cannot be revised.

Accepted Answer

A) True 
 B)False

Question 6

As inherent risk increases, and other risk factors remain constant, what happens to the extent of audit work?

Accepted Answer

A)  Increases. 
B)  Decreases. 
C)  Stays the same. 
D)  Becomes less reliable. 
A)  Increases. 
B)  Decreases. 
C)  Stays the same. 
D)  Becomes less reliable.

Question 7

Which of the following best describes the amount of misstatement an auditor is willing to accept and still judge that an account balance is not materially misstated?

Accepted Answer

A)  Tolerable misstatement. 
B)  Performance materiality. 
C)  A clearly trivial amount. 
D)  Significant risk. 
A)  Tolerable misstatement. 
B)  Performance materiality. 
C)  A clearly trivial amount. 
D)  Significant risk.

Question 8

What is the typical range for the setting of audit risk?

Accepted Answer

A)  1% - 10% 
B)  1% - 5% 
C)  0% - 5% 
D)  0% - 10% 
A)  1% - 10% 
B)  1% - 5% 
C)  0% - 5% 
D)  0% - 10%

Question 9

All audit procedures must be completed before year end.

Accepted Answer

A) True 
 B)False

Question 10

Detection risk is measured on a scale of 0% to 5%.

Accepted Answer

A) True 
 B)False

Question 11

A risk of material misstatement of 100% indicates that material misstatement is highly likely.

Accepted Answer

A) True 
 B)False

Question 12

What procedure has to be completed at or after the end of the period?

Accepted Answer

A)  Assessment of control risk. 
B)  Engagement letter. 
C)  Evaluation of adjusting journal entries. 
D)  All procedures must be completed prior to period end. 
A)  Assessment of control risk. 
B)  Engagement letter. 
C)  Evaluation of adjusting journal entries. 
D)  All procedures must be completed prior to period end.

Question 13

The existence of one or more risk factors means that there is a material misstatement present.

Accepted Answer

A) True 
 B)False

Question 14

Touring a company's plant offers much insight into potential audit issues.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following best describes what is meant by the timing of risk response?

Accepted Answer

A)  Where procedures are conducted. 
B)  When procedures are conducted. 
C)  How procedures are conducted. 
D)  Who conducts the procedures. 
A)  Where procedures are conducted. 
B)  When procedures are conducted. 
C)  How procedures are conducted. 
D)  Who conducts the procedures.

Question 16

The purpose of the auditor's consideration of the effectiveness of internal controls is to determine the nature, extent and timing of substantive testing.

Accepted Answer

A) True 
 B)False

Question 17

Appropriateness addresses which aspect of audit procedures?

Accepted Answer

A)  Relevance. 
B)  Reasoning. 
C)  Reliability. 
D)  Both A & C. 
A)  Relevance. 
B)  Reasoning. 
C)  Reliability. 
D)  Both A & C.

Question 18

Which of the following would be the likely risk results from using a 1% level of detection risk?

Accepted Answer

A)  High detection risk and low audit risk. 
B)  High detection risk and high audit risk. 
C)  Low detection risk and high audit risk. 
D)  Low detection risk and low audit risk. 
A)  High detection risk and low audit risk. 
B)  High detection risk and high audit risk. 
C)  Low detection risk and high audit risk. 
D)  Low detection risk and low audit risk.

Question 19

If $15,000 is considered to be material to the income statement, but $25,000 is material to the balance sheet, the auditor should set overall materiality at which of the following dollar amounts?

Accepted Answer

A)  $20,000 
B)  $25,000 
C)  $40,000 
D)  $15,000 
A)  $20,000 
B)  $25,000 
C)  $40,000 
D)  $15,000

Question 20

Brainstorming sessions should be led by the engagement team.

Accepted Answer

A) True 
 B)False

Inherent and control risks are risk controlled by the auditor.

If tolerable misstatement for accounts payable is $1,000, the auditor would need to obtain more audit evidence for that account than if tolerable misstatement were $100,000.

Importance of materiality judgments. Explain the differences between performance materiality and tolerable misstatement.

Only public companies have to be concerned with business risk.

Auditors need to choose materiality amounts carefully because once a materiality judgment has been made, it cannot be revised.

As inherent risk increases, and other risk factors remain constant, what happens to the extent of audit work?

Which of the following best describes the amount of misstatement an auditor is willing to accept and still judge that an account balance is not materially misstated?

What is the typical range for the setting of audit risk?

All audit procedures must be completed before year end.

Detection risk is measured on a scale of 0% to 5%.

A risk of material misstatement of 100% indicates that material misstatement is highly likely.

What procedure has to be completed at or after the end of the period?

The existence of one or more risk factors means that there is a material misstatement present.

Touring a company's plant offers much insight into potential audit issues.

Which of the following best describes what is meant by the timing of risk response?

The purpose of the auditor's consideration of the effectiveness of internal controls is to determine the nature, extent and timing of substantive testing.

Appropriateness addresses which aspect of audit procedures?

Which of the following would be the likely risk results from using a 1% level of detection risk?

If $15,000 is considered to be material to the income statement, but $25,000 is material to the balance sheet, the auditor should set overall materiality at which of the following dollar amounts?

Brainstorming sessions should be led by the engagement team.

Auditing: Integral to the Economy

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Professional Liability, Auditor Judgment Frameworks, and Professional Responsibilities

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters

Exam 7: Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Inherent and control risks are risk controlled by the auditor.

If tolerable misstatement for accounts payable is $1,000, the auditor would need to obtain more audit evidence for that account than if tolerable misstatement were $100,000.

Importance of materiality judgments. Explain the differences between performance materiality and tolerable misstatement.

Only public companies have to be concerned with business risk.

Auditors need to choose materiality amounts carefully because once a materiality judgment has been made, it cannot be revised.

As inherent risk increases, and other risk factors remain constant, what happens to the extent of audit work?

Which of the following best describes the amount of misstatement an auditor is willing to accept and still judge that an account balance is not materially misstated?

What is the typical range for the setting of audit risk?

All audit procedures must be completed before year end.

Detection risk is measured on a scale of 0% to 5%.

A risk of material misstatement of 100% indicates that material misstatement is highly likely.

What procedure has to be completed at or after the end of the period?

The existence of one or more risk factors means that there is a material misstatement present.

Touring a company's plant offers much insight into potential audit issues.

Which of the following best describes what is meant by the timing of risk response?

The purpose of the auditor's consideration of the effectiveness of internal controls is to determine the nature, extent and timing of substantive testing.

Appropriateness addresses which aspect of audit procedures?

Which of the following would be the likely risk results from using a 1% level of detection risk?

If $15,000 is considered to be material to the income statement, but $25,000 is material to the balance sheet, the auditor should set overall materiality at which of the following dollar amounts?

Brainstorming sessions should be led by the engagement team.

Auditing: Integral to the Economy

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Professional Liability, Auditor Judgment Frameworks, and Professional Responsibilities

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters