Exam7: Materiality and risk

Identify each of the three major issues or 'difficulties' an auditor must consider when allocating materiality to accounts, and describe how each issue affects the allocation decision.

(Essay)

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Question 61

Benchmarks are needed for evaluating materiality.What base would you use for the balance sheet?

(Multiple Choice)

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Question 62

Match the definitions provided below with the correct term.

a measure of the risk that the auditor will not detect a misstatement that exists in an assertion that could be material

planned detection risk

the materiality allocated to any given account balance

preliminary judgement about materiality

the risk that the auditor or audit firm will suffer harm because of a client relationship even though the audit report rendered for the client was correct

audit assurance

Correct Answer:

Verified

a measure of the risk that the auditor will not detect a misstatement that exists in an assertion that could be material

the materiality allocated to any given account balance

the risk that the auditor or audit firm will suffer harm because of a client relationship even though the audit report rendered for the client was correct

a measure of the auditor's assessment of the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the client's internal controls

the maximum amount by which the auditor believes that the statements could be misstated and still not affect the economic decisions of users

a measure of how much risk the auditor is willing to take that the financial statements may be materially misstated after the audit is completed and an unqualified audit opinion has been issued

(Matching)

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Question 63

Why might an auditor revise the preliminary assessment of materiality?

(Multiple Choice)

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Question 64

What is a potential risk of under-auditing?

(Multiple Choice)

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Question 65

If it is probable that the economic decisions of users would have been influenced by the omission or misstatement of information, then that information is:

(Multiple Choice)

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Question 66

An acceptable audit risk assessment of low indicates a risky client requiring more extensive evidence, assignment of more experienced personnel, and/or a more extensive review of working papers.

(True/False)

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Question 67

A major limitation in the application of the audit risk model is the:

(Multiple Choice)

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Question 68

Performance materiality refers to certain types of misstatements that are likely to be more important to users than others, even if the dollar amounts are the same.Identify three qualitative factors that might significantly affect an auditor's materiality judgement and give an example of each.

(Essay)

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Question 69

When discussing planned detection risk (PDR)and the audit risk model, which of the following statements is NOT true?

(Multiple Choice)

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Question 70

The audit risk model is used primarily:

(Multiple Choice)

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Question 71

What is the term used to describe the preliminary judgement about materiality allocated to any given account balance?

(Multiple Choice)

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Question 72

Australian auditing standards provide detailed, objective guidance on how auditors are to establish a preliminary materiality level, thus eliminating the need for subjective auditor judgement in this task.

(True/False)

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Question 73

Distinguish between tolerable misstatement and preliminary assessment of materiality.How are they related to each other?

(Essay)

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Question 74

Which one of the following statements does NOT apply to the preliminary assessment of materiality?

(Multiple Choice)

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Question 75

Which of the following is NOT a good indicator of the degree to which statements are relied on by external users?

(Multiple Choice)

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Question 76

The definition of materiality in the auditing standards is consistent with that contained in accounting standards.

(True/False)

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Question 77

Most practitioners allocate the preliminary judgement about materiality to balance sheet accounts rather than income statement accounts.

(True/False)

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Question 78

Acceptable audit risk and the amount of substantive evidence required are inversely related; i.e., as acceptable audit risk increases, the amount of substantive evidence the auditor plans to accumulate should decrease.

(True/False)

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Question 79

Risk in auditing means that the auditor accepts some level of uncertainty in performing the audit function.An effective auditor will:

(Multiple Choice)

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Question 80

Showing 61 - 80 of 105

Identify each of the three major issues or 'difficulties' an auditor must consider when allocating materiality to accounts, and describe how each issue affects the allocation decision.

Benchmarks are needed for evaluating materiality.What base would you use for the balance sheet?

Why might an auditor revise the preliminary assessment of materiality?

What is a potential risk of under-auditing?

If it is probable that the economic decisions of users would have been influenced by the omission or misstatement of information, then that information is:

An acceptable audit risk assessment of low indicates a risky client requiring more extensive evidence, assignment of more experienced personnel, and/or a more extensive review of working papers.

A major limitation in the application of the audit risk model is the:

Performance materiality refers to certain types of misstatements that are likely to be more important to users than others, even if the dollar amounts are the same.Identify three qualitative factors that might significantly affect an auditor's materiality judgement and give an example of each.

When discussing planned detection risk (PDR)and the audit risk model, which of the following statements is NOT true?

The audit risk model is used primarily:

What is the term used to describe the preliminary judgement about materiality allocated to any given account balance?

Australian auditing standards provide detailed, objective guidance on how auditors are to establish a preliminary materiality level, thus eliminating the need for subjective auditor judgement in this task.

Distinguish between tolerable misstatement and preliminary assessment of materiality.How are they related to each other?

Which one of the following statements does NOT apply to the preliminary assessment of materiality?

Which of the following is NOT a good indicator of the degree to which statements are relied on by external users?

The definition of materiality in the auditing standards is consistent with that contained in accounting standards.

Most practitioners allocate the preliminary judgement about materiality to balance sheet accounts rather than income statement accounts.

Acceptable audit risk and the amount of substantive evidence required are inversely related; i.e., as acceptable audit risk increases, the amount of substantive evidence the auditor plans to accumulate should decrease.

Risk in auditing means that the auditor accepts some level of uncertainty in performing the audit function.An effective auditor will:

Demand for audit and assurance services

Auditors’ legal environment

Audit quality and ethics

Audit responsibilities and objectives

Audit evidence

Audit planning and documentation

Internal control and control risk

Fraud auditing

The impact of information technology on the audit process

Overall audit plan and audit program

Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

Completing tests in the sales and collection cycle: Accounts receivable

Audit sampling

Audit of transaction cycles and financial statement balances I

Audit of transaction cycles and financial statement balances II

Completing the audit

Audit reporting

Other auditing and assurance engagements

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