Question 1

Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of:

Accepted Answer

A)  The maximum amount of asset overstatement that might mislead investors in relation to the latest financial statements under audit. 
B)  A maximum percentage of net income overstatement that might mislead investors in relation to the latest financial statements under audit. 
C)  A cumulative amount of misstatement of assets or income over several years past and current that might mislead investors in relation to the latest financial statements under audit. 
D)  Controversial accounting measurements that might mislead investors in relation to the latest financial statements under audit. 
A)  The maximum amount of asset overstatement that might mislead investors in relation to the latest financial statements under audit. 
B)  A maximum percentage of net income overstatement that might mislead investors in relation to the latest financial statements under audit. 
C)  A cumulative amount of misstatement of assets or income over several years past and current that might mislead investors in relation to the latest financial statements under audit. 
D)  Controversial accounting measurements that might mislead investors in relation to the latest financial statements under audit.

Question 2

The auditors assessed risk of material misstatement at 0.50 and said they wanted to achieve a 0.05 risk of failing to express a correct opinion on financial statements that were materially misstated.What detection risk do the auditors plan to use for planning the remainder of the audit work?

Accepted Answer

A)  0.20. 
B)  0.10. 
C)  0.75. 
D)  0.00. 
A)  0.20. 
B)  0.10. 
C)  0.75. 
D)  0.00.

Question 3

The nature of extended procedures for fraud detection is limited to those listed in the Professional Standards and Practices for Certified Fraud Examiners.

Accepted Answer

A) True 
 B)False

Question 4

The likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control is referred to as

Accepted Answer

A)  Inherent risk. 
B)  Control risk. 
C)  Detection risk. 
D)  Risk of material misstatement. 
A)  Inherent risk. 
B)  Control risk. 
C)  Detection risk. 
D)  Risk of material misstatement.

Question 5

Under the Private Securities Litigation Reform Act,independent auditors are required to

Accepted Answer

A)  Report in writing all instances of noncompliance to the client's board of directors. 
B)  Report to the SEC all instances of noncompliance they believe have a material effect on financial statements if the board of directors does not first report to the SEC. 
C)  Report clearly inconsequential noncompliance to the audit committee of the client's board of directors. 
D)  Resign from the audit engagement and report the instances of noncompliance to the SEC. 
A)  Report in writing all instances of noncompliance to the client's board of directors. 
B)  Report to the SEC all instances of noncompliance they believe have a material effect on financial statements if the board of directors does not first report to the SEC. 
C)  Report clearly inconsequential noncompliance to the audit committee of the client's board of directors. 
D)  Resign from the audit engagement and report the instances of noncompliance to the SEC.

Question 6

Which of the following would not likely be found in the minutes of the board of directors?

Accepted Answer

A)  Amount of dividends declared. 
B)  Approval to pledge assets as security for debts. 
C)  Authorization of officers' salaries. 
D)  Approval of a new desktop computer for the controller. 
A)  Amount of dividends declared. 
B)  Approval to pledge assets as security for debts. 
C)  Authorization of officers' salaries. 
D)  Approval of a new desktop computer for the controller.

Question 7

Horizontal analysis refers to

Accepted Answer

A)  The trend of income from year to year of persons suspected of fraud. 
B)  Changes of financial statement numbers and ratios across several years. 
C)  Financial statement amounts expressed each year as a proportion of a base amount. 
D)  The change in a suspect's net worth from the beginning to the end of a period. 
A)  The trend of income from year to year of persons suspected of fraud. 
B)  Changes of financial statement numbers and ratios across several years. 
C)  Financial statement amounts expressed each year as a proportion of a base amount. 
D)  The change in a suspect's net worth from the beginning to the end of a period.

Question 8

Detection risk occurs when internal control activities fail to detect material misstatements.

Accepted Answer

A) True 
 B)False

Question 9

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 10

_________________________________ refers to financial statement amounts expressed each year as proportions of a base.

Accepted Answer

The answer of _________________________________ refers to financial statement amounts expressed...

Question 11

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 nonquantitative 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 nonquantitative terms. 
C)  Exists independently of the financial statement audit. 
D)  Can be changed at the auditor's discretion.

Question 12

External auditors are responsible

Accepted Answer

A)  For authenticating documents. 
B)  For reporting immaterial frauds to a level of management at least one level above the people involved. 
C)  For finding all intentional misstatements concealed by collusion. 
D)  For reporting all frauds to outside agencies or parties. 
A)  For authenticating documents. 
B)  For reporting immaterial frauds to a level of management at least one level above the people involved. 
C)  For finding all intentional misstatements concealed by collusion. 
D)  For reporting all frauds to outside agencies or parties.

Question 13

Inherent risk and control risk differ from detection risk in that inherent risk and control risk are

Accepted Answer

A)  Elements of audit risk whereas detection risk is not. 
B)  Changed at the auditor's discretion whereas detection risk is not. 
C)  Considered at the individual account balance level whereas detection risk is not. 
D)  Functions of the client and its environment whereas detection risk is not. 
A)  Elements of audit risk whereas detection risk is not. 
B)  Changed at the auditor's discretion whereas detection risk is not. 
C)  Considered at the individual account balance level whereas detection risk is not. 
D)  Functions of the client and its environment whereas detection risk is not.

Question 14

Audit risk (AR)is a quality criterion based on professional judgment.

Accepted Answer

A) True 
 B)False

Question 15

Analytical procedures are evaluations of financial information made by a study of plausible relationships among financial and nonfinancial data.Understanding and evaluating such relationships are essential to the audit process.
The following financial statements were prepared by ABC Manufacturing Co.for the year ended December 31,2013.Also presented are various financial statement ratios for ABC as calculated from the prior-year financial statements.Sales represent net credit sales.The total assets and the receivables and inventory balances at December 31,2013,were the same as at December 31,2012.   Required:

Accepted Answer

Items 1 through 9 below represent financ

Question 16

Comparison of financial statement numbers and ratios across two or more years is referred to as _______________________________.

Accepted Answer

The answer of Comparison of financial statement numbers and ratios...

Question 17

The auditing profession official standard for an acceptable level of overall audit risk is 0.05 at the current level.

Accepted Answer

A) True 
 B)False

Question 18

If tests of controls induce the auditor to change the assessed level of control risk for property plant & equipment from 50 percent to 100 percent and audit risk (6 percent)and inherent risk remain constant,the acceptable level of detection risk

Accepted Answer

A)  Would most likely change from 10 percent to 5 percent. 
B)  Would most likely change from 20 percent to 40 percent. 
C)  Would most likely change from 30 percent to 15 percent. 
D)  Would be unchanged because the auditor has control over detection risk. 
E)  Cannot be determined because inherent risk is not given. 
A)  Would most likely change from 10 percent to 5 percent. 
B)  Would most likely change from 20 percent to 40 percent. 
C)  Would most likely change from 30 percent to 15 percent. 
D)  Would be unchanged because the auditor has control over detection risk. 
E)  Cannot be determined because inherent risk is not given.

Question 19

Reasonableness tests use to gain an understanding of financial statement accounts and relationships are known as _______________________________________.

Accepted Answer

analytical

Question 20

One of the typical characteristics of management fraud is

Accepted Answer

A)  Falsification of documents in order to misappropriate funds from an employer. 
B)  Victimization of investors through the use of materially misleading financial statements. 
C)  Illegal acts committed by management to evade laws and regulations. 
D)  Conversion of stolen inventory to cash deposited in a falsified bank account. 
A)  Falsification of documents in order to misappropriate funds from an employer. 
B)  Victimization of investors through the use of materially misleading financial statements. 
C)  Illegal acts committed by management to evade laws and regulations. 
D)  Conversion of stolen inventory to cash deposited in a falsified bank account.

Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of:

The auditors assessed risk of material misstatement at 0.50 and said they wanted to achieve a 0.05 risk of failing to express a correct opinion on financial statements that were materially misstated.What detection risk do the auditors plan to use for planning the remainder of the audit work?

The nature of extended procedures for fraud detection is limited to those listed in the Professional Standards and Practices for Certified Fraud Examiners.

The likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control is referred to as

Under the Private Securities Litigation Reform Act,independent auditors are required to

Which of the following would not likely be found in the minutes of the board of directors?

Horizontal analysis refers to

Detection risk occurs when internal control activities fail to detect material misstatements.

An auditor assesses the risk of material misstatement because it

_________________________________ refers to financial statement amounts expressed each year as proportions of a base.

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

External auditors are responsible

Inherent risk and control risk differ from detection risk in that inherent risk and control risk are

Audit risk (AR)is a quality criterion based on professional judgment.

Comparison of financial statement numbers and ratios across two or more years is referred to as _______________________________.

The auditing profession official standard for an acceptable level of overall audit risk is 0.05 at the current level.

If tests of controls induce the auditor to change the assessed level of control risk for property plant & equipment from 50 percent to 100 percent and audit risk (6 percent)and inherent risk remain constant,the acceptable level of detection risk

Reasonableness tests use to gain an understanding of financial statement accounts and relationships are known as _______________________________________.

One of the typical characteristics of management fraud is

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 Governmental and Fraud Audits

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing in a Computerized Environment

Filters

Exam 4: Management Fraud and Audit Risk

Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of:

The auditors assessed risk of material misstatement at 0.50 and said they wanted to achieve a 0.05 risk of failing to express a correct opinion on financial statements that were materially misstated.What detection risk do the auditors plan to use for planning the remainder of the audit work?

The nature of extended procedures for fraud detection is limited to those listed in the Professional Standards and Practices for Certified Fraud Examiners.

The likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control is referred to as

Under the Private Securities Litigation Reform Act,independent auditors are required to

Which of the following would not likely be found in the minutes of the board of directors?

Horizontal analysis refers to

Detection risk occurs when internal control activities fail to detect material misstatements.

An auditor assesses the risk of material misstatement because it

_________________________________ refers to financial statement amounts expressed each year as proportions of a base.

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

External auditors are responsible

Inherent risk and control risk differ from detection risk in that inherent risk and control risk are

Audit risk (AR)is a quality criterion based on professional judgment.

Comparison of financial statement numbers and ratios across two or more years is referred to as _______________________________.

The auditing profession official standard for an acceptable level of overall audit risk is 0.05 at the current level.

If tests of controls induce the auditor to change the assessed level of control risk for property plant & equipment from 50 percent to 100 percent and audit risk (6 percent)and inherent risk remain constant,the acceptable level of detection risk

Reasonableness tests use to gain an understanding of financial statement accounts and relationships are known as _______________________________________.

One of the typical characteristics of management fraud is

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 Governmental and Fraud Audits

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing in a Computerized Environment

Filters