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

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If materiality judgments change during the audit opinion formulation process, what happens to previous audit decisions that were based on the evidence obtained using the initial material setting?

(Multiple Choice)

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Question 41

The usual length of a brainstorming session is about four hours.

(True/False)

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Question 42

Clearly trivial and not material are terms that can be used interchangeably.

(True/False)

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Question 43

Which of the following are two frequently used preliminary analytical procedures?

(Multiple Choice)

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Question 44

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.

(True/False)

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Question 45

Auditors and management should agree on what is considered material.

(True/False)

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Question 46

When a successor auditor contacts a company's previous auditor, the successor auditor might obtain information related to client management's integrity.

(True/False)

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Question 47

Relationships between risks. Identify how an increase in each of the following factors (assuming the other factors remain unchanged) will affect planned audit evidence. Audit risk, ∙ Inherent risk, ∙ Control risk, ∙ Detection risk, ∙ Tolerable misstatement

(Essay)

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Question 48

Which of the following statements is false?

(Multiple Choice)

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Question 49

One potential limitation to using industry data in preliminary analytical procedures is that the data from the client may not be directly comparable to the data of the industry.

(True/False)

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Question 50

A significant risk is the same as a material risk.

(True/False)

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Question 51

What is the nature of the relationship between risk of material misstatement and audit risk?

(Multiple Choice)

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Question 52

Internal controls that the auditor expects to rely on to reduce substantive testing must be tested.

(True/False)

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Question 53

An increase in the risk of material misstatement would lead to which of the following responses?

(Multiple Choice)

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Question 54

An immaterial misstatement is defined as one that is clearly inconsequential, whether taken individually or in the aggregate and whether judged by any criteria of circumstance.

(True/False)

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Question 55

As the risk of material misstatement increases, what happens with detection risk?

(Multiple Choice)

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Question 56

Tolerable misstatement is always less than or equal to performance materiality.

(True/False)

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Question 57

The lower the dollar amount of the performance materiality the more audit evidence is required.

(True/False)

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Question 58

Which of the following ratios provide information about liquidity?

(Multiple Choice)

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Question 59

Trend analysis deals with the relationship between two or more accounts within the current-year.

(True/False)

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Question 60

Showing 41 - 60 of 92

If materiality judgments change during the audit opinion formulation process, what happens to previous audit decisions that were based on the evidence obtained using the initial material setting?

The usual length of a brainstorming session is about four hours.

Clearly trivial and not material are terms that can be used interchangeably.

Which of the following are two frequently used preliminary analytical procedures?

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.

Auditors and management should agree on what is considered material.

When a successor auditor contacts a company's previous auditor, the successor auditor might obtain information related to client management's integrity.

Relationships between risks. Identify how an increase in each of the following factors (assuming the other factors remain unchanged) will affect planned audit evidence. Audit risk, ∙ Inherent risk, ∙ Control risk, ∙ Detection risk, ∙ Tolerable misstatement

Which of the following statements is false?

One potential limitation to using industry data in preliminary analytical procedures is that the data from the client may not be directly comparable to the data of the industry.

A significant risk is the same as a material risk.

What is the nature of the relationship between risk of material misstatement and audit risk?

Internal controls that the auditor expects to rely on to reduce substantive testing must be tested.

An increase in the risk of material misstatement would lead to which of the following responses?

An immaterial misstatement is defined as one that is clearly inconsequential, whether taken individually or in the aggregate and whether judged by any criteria of circumstance.

As the risk of material misstatement increases, what happens with detection risk?

Tolerable misstatement is always less than or equal to performance materiality.

The lower the dollar amount of the performance materiality the more audit evidence is required.

Which of the following ratios provide information about liquidity?

Trend analysis deals with the relationship between two or more accounts within the current-year.

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