Question 1

Inherent risk is often high for an account such as

Accepted Answer

A)  inventory. 
B)  land. 
C)  capital stock. 
D)  notes payable. 
A)  inventory. 
B)  land. 
C)  capital stock. 
D)  notes payable. A

Question 2

Some risk exists that the financial statements are not fairly stated, even when the auditor's opinion is unmodified.

Accepted Answer

A) True 
 B)False  True

Question 3

Auditors typically rely on internal controls of their private company clients

Accepted Answer

A)  only as needed to complete the audit and satisfy Sarbanes-Oxley requirements. 
B)  only if the controls are determined to be effective. 
C)  only if the client asks an auditor to test controls. 
D)  only if the controls are sufficient to increase control risk to an acceptable level. 
A)  only as needed to complete the audit and satisfy Sarbanes-Oxley requirements. 
B)  only if the controls are determined to be effective. 
C)  only if the client asks an auditor to test controls. 
D)  only if the controls are sufficient to increase control risk to an acceptable level. B

Question 4

Which of the following is a correct statement?

Accepted Answer

A)  There is no relationship between materiality and risk in auditing. 
B)  Risk is a measure of magnitude or size. 
C)  The combination of performance materiality and the audit risk model factors determines planned audit evidence. 
D)  Performance materiality is part of the audit risk model. 
A)  There is no relationship between materiality and risk in auditing. 
B)  Risk is a measure of magnitude or size. 
C)  The combination of performance materiality and the audit risk model factors determines planned audit evidence. 
D)  Performance materiality is part of the audit risk model.

Question 5

Which of the following is true regarding audit risk for segments?

Accepted Answer

A)  Control risk must be assessed at the same level for all accounts. 
B)  Factors affecting inherent risk do not differ from account to account. 
C)  Acceptable audit risk is ordinarily assessed by the auditor during the substantive test of balances phase and is held constant for each major cycle and account. 
D)  In some cases, a lower acceptable audit risk may be more appropriate for one account than for others. 
A)  Control risk must be assessed at the same level for all accounts. 
B)  Factors affecting inherent risk do not differ from account to account. 
C)  Acceptable audit risk is ordinarily assessed by the auditor during the substantive test of balances phase and is held constant for each major cycle and account. 
D)  In some cases, a lower acceptable audit risk may be more appropriate for one account than for others.

Question 6

Why do auditors use the audit risk model when planning an audit?

Accepted Answer

The audit risk model is used primarily f

Question 7

The performance of risk assessment procedures is designed to help the auditor obtain an understanding of the entity.

Accepted Answer

A) True 
 B)False

Question 8

When management has an adequate level of integrity for the auditor to accept the engagement but cannot be regarded as completely honest in all dealings, auditors normally

Accepted Answer

A)  reduce acceptable audit risk and increase inherent risk. 
B)  reduce inherent risk and control risk. 
C)  increase inherent risk and control risk. 
D)  increase acceptable audit risk and reduce inherent risk. 
A)  reduce acceptable audit risk and increase inherent risk. 
B)  reduce inherent risk and control risk. 
C)  increase inherent risk and control risk. 
D)  increase acceptable audit risk and reduce inherent risk.

Question 9

Inherent risk and control risk are directly related.

Accepted Answer

A) True 
 B)False

Question 10

In practice, auditors rarely assign numerical probabilities to inherent risk, control risk, or acceptable audit risk. It is more common to assess these risks as high, medium, or low. For each of the four situations below, fill in the blanks for planned detection risk and the amount of evidence you would plan to gather ("planned evidence") using the terms high, medium, or low.

Accepted Answer

1. low, high
2. medi

Question 11

Which of the following would not increase the risks of material misstatement at the overall financial statement level?

Accepted Answer

A)  effective oversight by the board of directors 
B)  deficiencies in management's integrity 
C)  inadequate accounting systems 
D)  all of the above 
A)  effective oversight by the board of directors 
B)  deficiencies in management's integrity 
C)  inadequate accounting systems 
D)  all of the above

Question 12

There are several factors that affect engagement risk and, therefore, acceptable audit risk. Discuss three of these factors.

Accepted Answer

Engagement risk is affected by:
• The de

Question 13

Risk assessment procedures are performed to identify and assess the risk of material misstatement. List three risk assessment procedures.

Accepted Answer

• Inquiries of management and others wit

Question 14

Discussions, including exchanges of ideas or brainstorming among the engagement team members about business risks should include the financial statements, but not necessarily the related disclosures.

Accepted Answer

A) True 
 B)False

Question 15

A high detection risk equates to a low amount of audit evidence needed.

Accepted Answer

A) True 
 B)False

Question 16

Individuals engaged in conducting a fraud will generally not misrepresent information to the auditor.

Accepted Answer

A) True 
 B)False

Question 17

Audit reports issued under the PCAOB and the AICPA standards contain two important phrases that are directly related to materiality and to risk: obtain absolute assurance and free of material misstatement.

Accepted Answer

A) True 
 B)False

Question 18

The auditor assesses risks at the overall financial statement level but not at the audit objective level for the acquisition and payment cycle.

Accepted Answer

A) True 
 B)False

Question 19

Inherent risk and control risk

Accepted Answer

A)  are inversely related to each other. 
B)  are inversely related to detection risk. 
C)  are directly related to detection risk. 
D)  are directly related to audit risk. 
A)  are inversely related to each other. 
B)  are inversely related to detection risk. 
C)  are directly related to detection risk. 
D)  are directly related to audit risk.

Question 20

When taken together, the concepts of risk and materiality in auditing

Accepted Answer

A)  measure the uncertainty of amounts of a given magnitude. 
B)  measure uncertainty only. 
C)  measure magnitude only. 
D)  measure inherent risk. 
A)  measure the uncertainty of amounts of a given magnitude. 
B)  measure uncertainty only. 
C)  measure magnitude only. 
D)  measure inherent risk.

Exam 9: Assessing the Risk of Material Misstatement

Inherent risk is often high for an account such as

Some risk exists that the financial statements are not fairly stated, even when the auditor's opinion is unmodified.

Auditors typically rely on internal controls of their private company clients

Which of the following is a correct statement?

Which of the following is true regarding audit risk for segments?

Why do auditors use the audit risk model when planning an audit?

The performance of risk assessment procedures is designed to help the auditor obtain an understanding of the entity.

When management has an adequate level of integrity for the auditor to accept the engagement but cannot be regarded as completely honest in all dealings, auditors normally

Inherent risk and control risk are directly related.

Which of the following would not increase the risks of material misstatement at the overall financial statement level?

There are several factors that affect engagement risk and, therefore, acceptable audit risk. Discuss three of these factors.

Risk assessment procedures are performed to identify and assess the risk of material misstatement. List three risk assessment procedures.

Discussions, including exchanges of ideas or brainstorming among the engagement team members about business risks should include the financial statements, but not necessarily the related disclosures.

A high detection risk equates to a low amount of audit evidence needed.

Individuals engaged in conducting a fraud will generally not misrepresent information to the auditor.

Audit reports issued under the PCAOB and the AICPA standards contain two important phrases that are directly related to materiality and to risk: obtain absolute assurance and free of material misstatement.

The auditor assesses risks at the overall financial statement level but not at the audit objective level for the acquisition and payment cycle.

Inherent risk and control risk

When taken together, the concepts of risk and materiality in auditing

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Materiality

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

Filters