Question 1

Which of the following risks are used in the audit risk model?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 2

The auditor's responsibility section in an audit report states that "…the standards require that we plan and perform the audit to obtain ________ assurance about whether the financial statements are free of material misstatement." What type of assurance is given?

Accepted Answer

A)  immediate 
B)  limited 
C)  reasonable 
D)  absolute 
A)  immediate 
B)  limited 
C)  reasonable 
D)  absolute

Question 3

Which is a true statement about audit risk?

Accepted Answer

A)  Audit risk measures the risk that a material misstatement could occur and not be detected by internal control. 
B)  When auditors decide on a higher acceptable audit risk, they want to be more certain that the financial statements are not materially misstated. 
C)  Audit assurance is the complement of acceptable audit risk. 
D)  There is an inverse relationship between acceptable audit risk and planned detection risk. 
A)  Audit risk measures the risk that a material misstatement could occur and not be detected by internal control. 
B)  When auditors decide on a higher acceptable audit risk, they want to be more certain that the financial statements are not materially misstated. 
C)  Audit assurance is the complement of acceptable audit risk. 
D)  There is an inverse relationship between acceptable audit risk and planned detection risk.

Question 4

When considering the risk of misstatement due to fraud,

Accepted Answer

A)  the risk of not detecting a material misstatement due to fraud is lower than the risk of not detecting a misstatement due to error. 
B)  the risk is only made at the financial statement level. 
C)  auditing standards require the auditor to presume that risk of fraud exists in expense transactions. 
D)  auditing standards outline procedures the auditor should perform to obtain information from management about their consideration of fraud. 
A)  the risk of not detecting a material misstatement due to fraud is lower than the risk of not detecting a misstatement due to error. 
B)  the risk is only made at the financial statement level. 
C)  auditing standards require the auditor to presume that risk of fraud exists in expense transactions. 
D)  auditing standards outline procedures the auditor should perform to obtain information from management about their consideration of fraud.

Question 5

The risk of fraud should be assessed for the entire audit as well as by cycle, account, and objective.

Accepted Answer

A) True 
 B)False

Question 6

Risk of material misstatement at the assertion level

Accepted Answer

A)  is only relevant to account balances. 
B)  determines the nature, timing, and extent of further auditing procedures. 
C)  refers to risks that are pervasive to the financial statements as a whole. 
D)  consists of business risk and inherent risk. 
A)  is only relevant to account balances. 
B)  determines the nature, timing, and extent of further auditing procedures. 
C)  refers to risks that are pervasive to the financial statements as a whole. 
D)  consists of business risk and inherent risk.

Question 7

The PCAOB, but not the AICPA, auditing standards require inquiry of internal audit personnel by the auditor when that function exists within the audit client.

Accepted Answer

A) True 
 B)False

Question 8

Auditing standards emphasize the benefits and importance of obtaining information or different perspectives through inquiries of others within the entity and employees with differing levels of authority within the organization.

Accepted Answer

A) True 
 B)False

Question 9

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 audit files.

Accepted Answer

A) True 
 B)False

Question 10

The auditing profession has established guidelines for setting inherent risk.

Accepted Answer

A) True 
 B)False

Question 11

The auditor must perform substantive tests related to assertions deemed to have significant risks.

Accepted Answer

A) True 
 B)False

Question 12

The auditor's risk assessment for fraud should be ongoing throughout the audit.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is not true?

Accepted Answer

A)  Inherent risk is inversely related to the amount of audit evidence whereas detection risk is directly related to the amount of audit evidence required. 
B)  Inherent risk is directly related to evidence whereas detection risk is inversely related to the amount of audit evidence required. 
C)  Inherent risk is the susceptibility of the financial statements to material error, assuming no internal controls. 
D)  Inherent risk and control risk are assessed by the auditor and function independently of the financial statement audit. 
A)  Inherent risk is inversely related to the amount of audit evidence whereas detection risk is directly related to the amount of audit evidence required. 
B)  Inherent risk is directly related to evidence whereas detection risk is inversely related to the amount of audit evidence required. 
C)  Inherent risk is the susceptibility of the financial statements to material error, assuming no internal controls. 
D)  Inherent risk and control risk are assessed by the auditor and function independently of the financial statement audit.

Question 14

The risk of material misstatement exists only at the overall financial statement level.

Accepted Answer

A) True 
 B)False

Question 15

A ________ risk represents an identified and assessed risk of material misstatement that, in the auditor's professional judgment, requires special audit consideration.

Accepted Answer

A)  material 
B)  substantial 
C)  financial statement 
D)  significant 
A)  material 
B)  substantial 
C)  financial statement 
D)  significant

Question 16

Assessing the risk of material misstatement is closely related to each of the following except

Accepted Answer

A)  the auditor's overall audit responsibilities. 
B)  the auditor's materiality and audit planning. 
C)  not a critical consideration in most financial statement audits. 
D)  the auditor's review of the key transaction cycles and associated audit objectives. 
A)  the auditor's overall audit responsibilities. 
B)  the auditor's materiality and audit planning. 
C)  not a critical consideration in most financial statement audits. 
D)  the auditor's review of the key transaction cycles and associated audit objectives.

Question 17

Auditors frequently refer to the terms audit assurance, overall assurance, and level of assurance instead of

Accepted Answer

A)  detection risk. 
B)  audit report risk. 
C)  acceptable audit risk. 
D)  inherent risk. 
A)  detection risk. 
B)  audit report risk. 
C)  acceptable audit risk. 
D)  inherent risk.

Question 18

When the auditor is attempting to determine the extent to which external users rely on a client's financial statements, they may consider several factors except for

Accepted Answer

A)  client size. 
B)  concentration of ownership. 
C)  nature and amounts of liabilities. 
D)  assessment of detection risk. 
A)  client size. 
B)  concentration of ownership. 
C)  nature and amounts of liabilities. 
D)  assessment of detection risk.

Question 19

For a private company client, auditors are required to test any internal controls they believe have not been operating effectively during the period under audit.

Accepted Answer

A) True 
 B)False

Question 20

The phrase free of material misstatement informs users that the auditor's responsibility is not limited to only material financial information.

Accepted Answer

A) True 
 B)False

Exam 9: Assessing the Risk of Material Misstatement

Which of the following risks are used in the audit risk model?

The auditor's responsibility section in an audit report states that "…the standards require that we plan and perform the audit to obtain ________ assurance about whether the financial statements are free of material misstatement." What type of assurance is given?

Which is a true statement about audit risk?

When considering the risk of misstatement due to fraud,

The risk of fraud should be assessed for the entire audit as well as by cycle, account, and objective.

Risk of material misstatement at the assertion level

The PCAOB, but not the AICPA, auditing standards require inquiry of internal audit personnel by the auditor when that function exists within the audit client.

Auditing standards emphasize the benefits and importance of obtaining information or different perspectives through inquiries of others within the entity and employees with differing levels of authority within the organization.

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 audit files.

The auditing profession has established guidelines for setting inherent risk.

The auditor must perform substantive tests related to assertions deemed to have significant risks.

The auditor's risk assessment for fraud should be ongoing throughout the audit.

Which of the following statements is not true?

The risk of material misstatement exists only at the overall financial statement level.

A ________ risk represents an identified and assessed risk of material misstatement that, in the auditor's professional judgment, requires special audit consideration.

Assessing the risk of material misstatement is closely related to each of the following except

Auditors frequently refer to the terms audit assurance, overall assurance, and level of assurance instead of

When the auditor is attempting to determine the extent to which external users rely on a client's financial statements, they may consider several factors except for

For a private company client, auditors are required to test any internal controls they believe have not been operating effectively during the period under audit.

The phrase free of material misstatement informs users that the auditor's responsibility is not limited to only material financial information.

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

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