Question 1

Which one of the following statements is correct concerning the concept of materiality?

Accepted Answer

A)  Materiality is determined by reference to guidelines established by ASIC. 
B)  Materiality depends only on the dollar amount of an item relative to other items in the financial report. 
C)  Materiality depends on the nature of an item rather than on the dollar amount. 
D)  Materiality is a matter of professional judgment. 
A)  Materiality is determined by reference to guidelines established by ASIC. 
B)  Materiality depends only on the dollar amount of an item relative to other items in the financial report. 
C)  Materiality depends on the nature of an item rather than on the dollar amount. 
D)  Materiality is a matter of professional judgment.

Question 2

In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10 000 would have a material effect on an entity's income statement, but that misstatements would have to aggregate $20 000 to materially affect the statement of financial position. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate:

Accepted Answer

A)  $10 000. 
B)  $15 000. 
C)  $20 000. 
D)  $30 000. 
A)  $10 000. 
B)  $15 000. 
C)  $20 000. 
D)  $30 000.

Question 3

The primary factor that distinguishes errors from fraud is:

Accepted Answer

A)  whether the underlying cause of misstatement relates to the misapplication of accounting principles or to clerical processing. 
B)  whether the misstatement is perpetrated by an employee or by a member of management. 
C)  whether the underlying cause of a misstatement is intentional or unintentional. 
D)  whether the misstatement is concealed. 
A)  whether the underlying cause of misstatement relates to the misapplication of accounting principles or to clerical processing. 
B)  whether the misstatement is perpetrated by an employee or by a member of management. 
C)  whether the underlying cause of a misstatement is intentional or unintentional. 
D)  whether the misstatement is concealed.

Question 4

Which of the following relatively small misstatements would most likely have a material effect on an entity's financial report?

Accepted Answer

A)  An illegal payment to a foreign official that was not recorded. 
B)  A piece of obsolete office equipment that was not retired. 
C)  A petty cash fund disbursement that was not properly authorised. 
D)  An uncollectible account receivable that was not written off. 
A)  An illegal payment to a foreign official that was not recorded. 
B)  A piece of obsolete office equipment that was not retired. 
C)  A petty cash fund disbursement that was not properly authorised. 
D)  An uncollectible account receivable that was not written off.

Question 5

Which of the following does not represent an opportunity to commit fraud?

Accepted Answer

A)  Significant related-party transactions. 
B)  The auditor's relationship with management is strained. 
C)  Management is dominated by a single person. 
D)  The financial report included highly subjective estimates. 
A)  Significant related-party transactions. 
B)  The auditor's relationship with management is strained. 
C)  Management is dominated by a single person. 
D)  The financial report included highly subjective estimates.

Question 6

In general, material frauds perpetrated by which of the following people are most difficult to detect?

Accepted Answer

A)  Internal auditor. 
B)  Keypunch operator. 
C)  Cashier. 
D)  Financial controller. 
A)  Internal auditor. 
B)  Keypunch operator. 
C)  Cashier. 
D)  Financial controller.

Question 7

Which of the following statements is true?

Accepted Answer

A)  The risk that material misstatement will not be prevented or detected on a timely basis by the internal control can be reduced to zero by effective control activities. 
B)  Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk. 
C)  Detection risk is a function of the efficiency of an auditing procedure. 
D)  The existing levels of inherent risk, control risk and detection risk can be changed at the discretion of the auditor. 
A)  The risk that material misstatement will not be prevented or detected on a timely basis by the internal control can be reduced to zero by effective control activities. 
B)  Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk. 
C)  Detection risk is a function of the efficiency of an auditing procedure. 
D)  The existing levels of inherent risk, control risk and detection risk can be changed at the discretion of the auditor.

Question 8

Which of the following situations would be defined as fraud under the auditing standards?

Accepted Answer

A)  Errors in the application of accounting principles. 
B)  Errors in the accounting data underlying the financial report. 
C)  Misinterpretation of facts that existed when the financial report was prepared. 
D)  Misappropriation of assets. 
A)  Errors in the application of accounting principles. 
B)  Errors in the accounting data underlying the financial report. 
C)  Misinterpretation of facts that existed when the financial report was prepared. 
D)  Misappropriation of assets.

Question 9

An auditor discovers a likely fraud during an audit, but concludes that the effect of the fraud is not sufficiently material to affect the auditor's opinion. The auditor should:

Accepted Answer

A)  disclose the fraud to the appropriate level of the client's management. 
B)  disclose the fraud to appropriate authorities external to the client. 
C)  discuss with the client the additional audit procedures that will be needed to identify the exact amount of the fraud. 
D)  modify the audit program to include tests specifically designed to identify the fraud and its impact on the financial report. 
A)  disclose the fraud to the appropriate level of the client's management. 
B)  disclose the fraud to appropriate authorities external to the client. 
C)  discuss with the client the additional audit procedures that will be needed to identify the exact amount of the fraud. 
D)  modify the audit program to include tests specifically designed to identify the fraud and its impact on the financial report.

Which one of the following statements is correct concerning the concept of materiality?

The primary factor that distinguishes errors from fraud is:

Which of the following relatively small misstatements would most likely have a material effect on an entity's financial report?

Which of the following does not represent an opportunity to commit fraud?

In general, material frauds perpetrated by which of the following people are most difficult to detect?

Which of the following statements is true?

Which of the following situations would be defined as fraud under the auditing standards?

An auditor discovers a likely fraud during an audit, but concludes that the effect of the fraud is not sufficiently material to affect the auditor's opinion. The auditor should:

Assurance and Auditing: An Overview

The Structure of the Profession

Ethics, Independence and Corporate Governance

The Legal Liability of Auditors Part Two: Planning and Risk

Overview of Elements of the Financial Report Audit Process

Planning, Understanding the Entity and Evaluating Business Risk

Understanding and Assessing Internal Control Part Three: Tests of Control and Tests of Details

Tests of Controls

Substantive Tests of Transactions and Balances

Audit Sampling Part Four: Completion and Communication

Completion and Review

The Auditors Reporting Obligations Part Five: Other Assurance Services

Internal Auditing

Auditing and Assurance Services in the Public Sector

Other Assurance Services and Advanced Topics

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Exam 7: Assessing Specific Business Risk

Which one of the following statements is correct concerning the concept of materiality?

The primary factor that distinguishes errors from fraud is:

Which of the following relatively small misstatements would most likely have a material effect on an entity's financial report?

Which of the following does not represent an opportunity to commit fraud?

In general, material frauds perpetrated by which of the following people are most difficult to detect?

Which of the following statements is true?

Which of the following situations would be defined as fraud under the auditing standards?

An auditor discovers a likely fraud during an audit, but concludes that the effect of the fraud is not sufficiently material to affect the auditor's opinion. The auditor should:

Assurance and Auditing: An Overview

The Structure of the Profession

Ethics, Independence and Corporate Governance

The Legal Liability of Auditors Part Two: Planning and Risk

Overview of Elements of the Financial Report Audit Process

Planning, Understanding the Entity and Evaluating Business Risk

Understanding and Assessing Internal Control Part Three: Tests of Control and Tests of Details

Tests of Controls

Substantive Tests of Transactions and Balances

Audit Sampling Part Four: Completion and Communication

Completion and Review

The Auditors Reporting Obligations Part Five: Other Assurance Services

Internal Auditing

Auditing and Assurance Services in the Public Sector

Other Assurance Services and Advanced Topics

Filters