Question 1

Which of the following is not required by AU 240,"Consideration of Fraud in a Financial Statement Audit"?

Accepted Answer

A)  Conduct a continuing assessment of the risks of material misstatement due to fraud throughout the audit. 
B)  Conduct a discussion by the audit team of the risks of material misstatement due to fraud. 
C)  Conduct the audit with professional skepticism, which includes an attitude that assumes balances are incorrect until verified by the auditor. 
D)  Conduct inquiries of shareholders as to their views about the risks of fraud and their knowledge of any fraud or suspected fraud. 
A)  Conduct a continuing assessment of the risks of material misstatement due to fraud throughout the audit. 
B)  Conduct a discussion by the audit team of the risks of material misstatement due to fraud. 
C)  Conduct the audit with professional skepticism, which includes an attitude that assumes balances are incorrect until verified by the auditor. 
D)  Conduct inquiries of shareholders as to their views about the risks of fraud and their knowledge of any fraud or suspected fraud.

Question 2

When fraud risk is significant,and management cooperation is unsatisfactory,the auditors will most likely

Accepted Answer

A)  perform extended audit procedures. 
B)  consult with fraud examiners. 
C)  report directly to the Securities and Exchange Commission within one day. 
D)  withdraw from the engagement. 
A)  perform extended audit procedures. 
B)  consult with fraud examiners. 
C)  report directly to the Securities and Exchange Commission within one day. 
D)  withdraw from the engagement.

Question 3

An audit team uses the assessed risk of material misstatement to

Accepted Answer

A)  evaluate the effectiveness of the entity's internal control policies and activities. 
B)  identify transactions and account balances where inherent risk is at the maximum. 
C)  indicate whether materiality thresholds for planning and evaluation purposes are sufficiently high. 
D)  determine the acceptable level of detection risk for financial statement assertions. 
A)  evaluate the effectiveness of the entity's internal control policies and activities. 
B)  identify transactions and account balances where inherent risk is at the maximum. 
C)  indicate whether materiality thresholds for planning and evaluation purposes are sufficiently high. 
D)  determine the acceptable level of detection risk for financial statement assertions.

Question 4

The auditor uses the assessed level of risk of material misstatement to determine the acceptable level of detection risk for financial statement assertions.As the acceptable level of detection risk decreases,the auditor may do one or more of the following except change the

Accepted Answer

A)  nature of substantive tests to more effective procedures. 
B)  timing of substantive tests, such as performing them at year-end rather than at an interim date. 
C)  extent of substantive tests, such as using larger sample sizes. 
D)  assurances provided by substantive tests to a lower level. 
A)  nature of substantive tests to more effective procedures. 
B)  timing of substantive tests, such as performing them at year-end rather than at an interim date. 
C)  extent of substantive tests, such as using larger sample sizes. 
D)  assurances provided by substantive tests to a lower level.

Question 5

Based on audit evidence gathered and evaluated,an auditor decides to increase the assessed level of control risk from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level,the auditor would

Accepted Answer

A)  decrease substantive testing. 
B)  decrease detection risk. 
C)  increase inherent risk. 
D)  increase materiality levels. 
A)  decrease substantive testing. 
B)  decrease detection risk. 
C)  increase inherent risk. 
D)  increase materiality levels.

Question 6

This question tests your ability to perceive the place(s)where various potential problems may exist and the type of problem (overstatement or understatement)that may exist.It asks that you supply the words or descriptions that complete the analysis begun by applying analytical procedures.
Required:
For each of the items below,identify the account(s)that need(s)to be audited carefully and the reason (i.e.,potential overstatement or understatement of _______).
a.If the current year accounts receivable are larger than last year but the allowance for doubtful accounts is the same.
b.If the current year inventory is larger than last year and the current year gross margin (profit)is larger.
c.If current year long-term liabilities are larger than last year and the interest expense is the same.
d.If current year fixed assets are larger and current depreciation expense is the same as last year.

Accepted Answer

a.The collectability of accounts receiva

Question 7

Which of the following statements best describes auditors' responsibility to detect errors and frauds?

Accepted Answer

A)  Auditors should design an audit to provide reasonable assurance of detecting errors and frauds that are material to the financial statements. 
B)  Auditors are responsible to detect material errors, but have no responsibility to detect material frauds that are concealed through employee collusion or management override of the internal control structure. 
C)  Auditors have no responsibility to detect errors and frauds unless analytical procedures or tests of transactions identify conditions causing a reasonably prudent auditor to suspect that the financial statements were materially misstated. 
D)  Auditors have no responsibility to detect errors and frauds because an auditor is not an insurer and an audit does not constitute a guarantee. 
A)  Auditors should design an audit to provide reasonable assurance of detecting errors and frauds that are material to the financial statements. 
B)  Auditors are responsible to detect material errors, but have no responsibility to detect material frauds that are concealed through employee collusion or management override of the internal control structure. 
C)  Auditors have no responsibility to detect errors and frauds unless analytical procedures or tests of transactions identify conditions causing a reasonably prudent auditor to suspect that the financial statements were materially misstated. 
D)  Auditors have no responsibility to detect errors and frauds because an auditor is not an insurer and an audit does not constitute a guarantee.

Question 8

The risk of material misstatement differs from detection risk in that it

Accepted Answer

A)  arises from the misapplication of audit procedures. 
B)  may be assessed in either quantitative or non-quantitative terms. 
C)  exists independently of the financial statement audit. 
D)  can be changed at the auditor's discretion. 
A)  arises from the misapplication of audit procedures. 
B)  may be assessed in either quantitative or non-quantitative terms. 
C)  exists independently of the financial statement audit. 
D)  can be changed at the auditor's discretion.

Question 9

Management fraud generally refers to

Accepted Answer

A)  unintentional mistakes. 
B)  noncompliance. 
C)  intentional distortions of financial statements. 
D)  violations of GAAS. 
A)  unintentional mistakes. 
B)  noncompliance. 
C)  intentional distortions of financial statements. 
D)  violations of GAAS.

Question 10

An auditor assesses the risk of material misstatement because it

Accepted Answer

A)  is relevant to the auditor's understanding of the control environment. 
B)  provides assurance that the auditor's overall materiality levels are appropriate. 
C)  indicates to the auditor where inherent risk may be the greatest. 
D)  affects the level of detection risk that the auditor may accept. 
A)  is relevant to the auditor's understanding of the control environment. 
B)  provides assurance that the auditor's overall materiality levels are appropriate. 
C)  indicates to the auditor where inherent risk may be the greatest. 
D)  affects the level of detection risk that the auditor may accept.

Question 11

What assurance does the auditor provide that errors,frauds,and direct effect noncompliance that are material to the financial statements will be detected?

Accepted Answer

A)  Errors: Limited; Frauds: Negative; Direct effect noncompliance: Limited 
B)  Errors: Limited; Frauds: Limited; Direct effect noncompliance: Reasonable 
C)  Errors: Reasonable; Frauds: Limited; Direct effect noncompliance: Limited 
D)  Errors: Reasonable; Frauds: Reasonable; Direct effect noncompliance: Reasonable 
A)  Errors: Limited; Frauds: Negative; Direct effect noncompliance: Limited 
B)  Errors: Limited; Frauds: Limited; Direct effect noncompliance: Reasonable 
C)  Errors: Reasonable; Frauds: Limited; Direct effect noncompliance: Limited 
D)  Errors: Reasonable; Frauds: Reasonable; Direct effect noncompliance: Reasonable

Which of the following is not required by AU 240,"Consideration of Fraud in a Financial Statement Audit"?

When fraud risk is significant,and management cooperation is unsatisfactory,the auditors will most likely

An audit team uses the assessed risk of material misstatement to

The auditor uses the assessed level of risk of material misstatement to determine the acceptable level of detection risk for financial statement assertions.As the acceptable level of detection risk decreases,the auditor may do one or more of the following except change the

Based on audit evidence gathered and evaluated,an auditor decides to increase the assessed level of control risk from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level,the auditor would

Which of the following statements best describes auditors' responsibility to detect errors and frauds?

The risk of material misstatement differs from detection risk in that it

Management fraud generally refers to

An auditor assesses the risk of material misstatement because it

What assurance does the auditor provide that errors,frauds,and direct effect noncompliance that are material to the financial statements will be detected?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

Exam 4: Management Fraud and Audit Risk

Which of the following is not required by AU 240,"Consideration of Fraud in a Financial Statement Audit"?

When fraud risk is significant,and management cooperation is unsatisfactory,the auditors will most likely

An audit team uses the assessed risk of material misstatement to

The auditor uses the assessed level of risk of material misstatement to determine the acceptable level of detection risk for financial statement assertions.As the acceptable level of detection risk decreases,the auditor may do one or more of the following except change the

Based on audit evidence gathered and evaluated,an auditor decides to increase the assessed level of control risk from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level,the auditor would

Which of the following statements best describes auditors' responsibility to detect errors and frauds?

The risk of material misstatement differs from detection risk in that it

Management fraud generally refers to

An auditor assesses the risk of material misstatement because it

What assurance does the auditor provide that errors,frauds,and direct effect noncompliance that are material to the financial statements will be detected?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters