Exam 6: Assessing Inherent Risk, and Other Specific Business Risks

Some account balances, such as those for foreign currency transactions, are the results of complex calculations.The susceptibility to material misstatements in these types of accounts is defined as:

Why is the auditor concerned about the appropriateness of the going concern assumption?

Which of the following statements is true?

The primary factor that distinguishes error from fraud is:

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

Which of the following conditions or events would most likely cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

If an illegal act is discovered during the audit of a publicly-held company, the auditor should:

Your audit client, Red Roses Ltd, has a new management incentive scheme in place, with bonuses calculated on the basis of the increase in net profit over the previous year.The basis of the bonus will remain the same for the next three years.Your client has had a very poor year and there is no way this year that it will be able to meet its budget or last year's net profit.Which of the following represents a high inherent risk for this year?

The auditor is most likely to presume that a high risk of a fraud exists if:

An independent auditor finds that Baron Pty Ltd occupies office space, at no charge, in an office building owned by a shareholder of Baron Pty Ltd.This finding indicates the existence of:

The relevant period that the auditor needs to consider when assessing the appropriateness of the going concern assumption is:

An auditor finds evidence that warehouse staff are fraudulently claiming overtime.The auditor should:

With respect to illegal acts, the auditor's responsibility is to:

For a reporting entity that has participated in related-party transactions that are material, disclosure in the financial report should include:

Which of the following actions cannot be taken by auditors to reduce audit risk?

Earnings management includes:

Which of the audit procedures listed below would be least likely to disclose the existence of related-party transactions of a client during the period under audit?

Which of the following statements best describes the auditor's responsibility regarding the detection of fraud?

Which of the following audit procedures is most likely to identify doubts about the appropriateness of the going concern assumption?

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: