Question 1

Which of the following would be a reason that industry and client data were not directly comparable?

Accepted Answer

A)  Broad industry. 
B)  Use of different accounting principles. 
C)  Neither of the above. 
D)  Both A & B are correct. 
A)  Broad industry. 
B)  Use of different accounting principles. 
C)  Neither of the above. 
D)  Both A & B are correct.

Question 2

Which of the following terms best describes the numerical depiction of the relationship between control risk, inherent risk, detection risk, and audit risk?

Accepted Answer

A)  Audit risk model. 
B)  Risk of misstatement model. 
C)  Significance model. 
D)  Materiality equation. 
A)  Audit risk model. 
B)  Risk of misstatement model. 
C)  Significance model. 
D)  Materiality equation.

Question 3

A detection risk of 90% would suggest that an auditor must perform extensive substantive audit testing.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following terms best describes the risk that audit procedures will fail to detect misstatements exceeding tolerable misstatement?

Accepted Answer

A)  Audit risk. 
B)  Control risk. 
C)  Detection risk. 
D)  Inherent risk. 
A)  Audit risk. 
B)  Control risk. 
C)  Detection risk. 
D)  Inherent risk.

Question 5

Detection risk is controllable by the client.

Accepted Answer

A) True 
 B)False

Question 6

Qualitative reasons for materiality.
List the reasons why an amount that is quantitatively immaterial might be considered material due to qualitative reasons.

Accepted Answer

The SEC provides guidance when a quantit

Question 7

What type of relationship exists between audit risk and detection risk?

Accepted Answer

A)  Direct. 
B)  Inverse. 
C)  Indirect. 
D)  No relationship. 
A)  Direct. 
B)  Inverse. 
C)  Indirect. 
D)  No relationship.

Question 8

Ineffective internal controls result in higher risk of material misstatement in the financial statements than effective internal controls.

Accepted Answer

A) True 
 B)False

Question 9

Heightened risk of material misstatement causes the auditor to perform audit procedures closer to year end.

Accepted Answer

A) True 
 B)False

Question 10

To learn more about a company and its inherent risks, auditors can use which of the following resources?

Accepted Answer

A)  Management inquiries. 
B)  Economic statistics. 
C)  Online searches. 
D)  Any of the above could be used. 
A)  Management inquiries. 
B)  Economic statistics. 
C)  Online searches. 
D)  Any of the above could be used.

Question 11

What is the typical range for the assessment of the risk of material misstatement?

Accepted Answer

A)  0% - 100% 
B)  0% - 10% 
C)  0% - 5% 
D)  1% - 100% 
A)  0% - 100% 
B)  0% - 10% 
C)  0% - 5% 
D)  1% - 100%

Question 12

Which item is correct concerning the risk of material misstatement?

Accepted Answer

A)  Risk of material misstatement arises because audit procedures have been misapplied. 
B)  Risk of material misstatement can be controlled and changed by the auditor. 
C)  Risk of material misstatement must be assessed in non-quantitative terms. 
D)  Risk of material misstatement is controllable by the client. 
A)  Risk of material misstatement arises because audit procedures have been misapplied. 
B)  Risk of material misstatement can be controlled and changed by the auditor. 
C)  Risk of material misstatement must be assessed in non-quantitative terms. 
D)  Risk of material misstatement is controllable by the client.

Question 13

Which of the following best describes year-to-year comparisons of account balances?

Accepted Answer

A)  Time analyses. 
B)  Reasonableness tests. 
C)  Ratio analyses. 
D)  Trend analyses. 
A)  Time analyses. 
B)  Reasonableness tests. 
C)  Ratio analyses. 
D)  Trend analyses.

Question 14

Inherent risk.
List some factors that would lead an auditor to assess inherent risk relating to operations at a higher level.

Accepted Answer

Factors that would lead an auditor to as

Question 15

Insistence from the CEO that she must be present at all meetings between the audit committee and internal/external auditors would cause auditors to assess inherent risk at a higher level.

Accepted Answer

A) True 
 B)False

Question 16

Materiality relates to the significance or importance of an item.

Accepted Answer

A) True 
 B)False

Question 17

If the auditor's assessment of audit risk is low (e.g., 1% rather than 5%), what is the effect on the amount of direct testing performed by the auditor?

Accepted Answer

A)  Increase in direct testing. 
B)  Decrease in direct testing 
C)  No change in direct testing. 
D)  Direct testing is not needed. 
A)  Increase in direct testing. 
B)  Decrease in direct testing 
C)  No change in direct testing. 
D)  Direct testing is not needed.

Question 18

In most audits, materiality is most commonly expressed as a percentage of net income.

Accepted Answer

A) True 
 B)False

Question 19

The quick ratio is useful for analyzing inventory accounts.

Accepted Answer

A) True 
 B)False

Question 20

A company's history of exactly meeting analyst estimates is a factor which could lead auditors to assess inherent risk at a higher level.

Accepted Answer

A) True 
 B)False

Which of the following would be a reason that industry and client data were not directly comparable?

Which of the following terms best describes the numerical depiction of the relationship between control risk, inherent risk, detection risk, and audit risk?

A detection risk of 90% would suggest that an auditor must perform extensive substantive audit testing.

Which of the following terms best describes the risk that audit procedures will fail to detect misstatements exceeding tolerable misstatement?

Detection risk is controllable by the client.

Qualitative reasons for materiality. List the reasons why an amount that is quantitatively immaterial might be considered material due to qualitative reasons.

What type of relationship exists between audit risk and detection risk?

Ineffective internal controls result in higher risk of material misstatement in the financial statements than effective internal controls.

Heightened risk of material misstatement causes the auditor to perform audit procedures closer to year end.

To learn more about a company and its inherent risks, auditors can use which of the following resources?

What is the typical range for the assessment of the risk of material misstatement?

Which item is correct concerning the risk of material misstatement?

Which of the following best describes year-to-year comparisons of account balances?

Inherent risk. List some factors that would lead an auditor to assess inherent risk relating to operations at a higher level.

Insistence from the CEO that she must be present at all meetings between the audit committee and internal/external auditors would cause auditors to assess inherent risk at a higher level.

Materiality relates to the significance or importance of an item.

If the auditor's assessment of audit risk is low (e.g., 1% rather than 5%), what is the effect on the amount of direct testing performed by the auditor?

In most audits, materiality is most commonly expressed as a percentage of net income.

The quick ratio is useful for analyzing inventory accounts.

A company's history of exactly meeting analyst estimates is a factor which could lead auditors to assess inherent risk at a higher level.

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

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

Which of the following would be a reason that industry and client data were not directly comparable?

Which of the following terms best describes the numerical depiction of the relationship between control risk, inherent risk, detection risk, and audit risk?

A detection risk of 90% would suggest that an auditor must perform extensive substantive audit testing.

Which of the following terms best describes the risk that audit procedures will fail to detect misstatements exceeding tolerable misstatement?

Detection risk is controllable by the client.

Qualitative reasons for materiality. List the reasons why an amount that is quantitatively immaterial might be considered material due to qualitative reasons.

What type of relationship exists between audit risk and detection risk?

Ineffective internal controls result in higher risk of material misstatement in the financial statements than effective internal controls.

Heightened risk of material misstatement causes the auditor to perform audit procedures closer to year end.

To learn more about a company and its inherent risks, auditors can use which of the following resources?

What is the typical range for the assessment of the risk of material misstatement?

Which item is correct concerning the risk of material misstatement?

Which of the following best describes year-to-year comparisons of account balances?

Inherent risk. List some factors that would lead an auditor to assess inherent risk relating to operations at a higher level.

Insistence from the CEO that she must be present at all meetings between the audit committee and internal/external auditors would cause auditors to assess inherent risk at a higher level.

Materiality relates to the significance or importance of an item.

If the auditor's assessment of audit risk is low (e.g., 1% rather than 5%), what is the effect on the amount of direct testing performed by the auditor?

In most audits, materiality is most commonly expressed as a percentage of net income.

The quick ratio is useful for analyzing inventory accounts.

A company's history of exactly meeting analyst estimates is a factor which could lead auditors to assess inherent risk at a higher level.

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

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