Exam 4: Management Fraud and Audit Risk

By both fraud and aggressive _______________________________,companies have caused financial statements to be misleading.

An audit team uses the assessed risk of material misstatement to

The preliminary analytical work performed in the planning stage of an audit is sometimes called ________________________________________________.

Analytical procedures used when planning an audit should concentrate on

Analytical procedures are used

If tests of controls induce the audit team to change the assessed level of control risk for fixed assets from 0.4 to 1.0 and audit risk (0.05)and inherent risk remain constant,the acceptable level of detection risk is most likely to

Sources of financial and nonfinancial data do not include

__________________________________ are those individuals or organizations that are closely tied to the auditee,possibly by familial or investment relationships.

When the auditors become aware of noncompliance with a law or regulation committed by client personnel,the primary reason that the auditors should obtain a better understanding of the nature of the act is to

A.Audit risks for particular accounts can be expressed in the model: Audit risk (AR)= Inherent risk (IR)x Internal control risk (CR)x Detection risk (DR).If an audit risk is set at 5 percent,the inherent risk at 80 percent,and the internal control risk at 25 percent,what would be the detection risk? A. Detection risk =.05/(.80 X .25) = .25 B. .01/(.80 X .25) =.05 B. If the audit team wanted to reduce the audit risk to 1 percent, what would be the detection risk? C. The audit team would have to increase the amount and effectiveness of evidence gathered from substantive procedures. C. What would the audit team have to do to reduce the audit risk?

Analytical procedures used in planning an audit should focus on

Knowledge of the client's business from preliminary analytical procedures can help auditors identify problem areas and make broad risk assessments.

Inherent risk is not a characteristic of the

Audit risk can be expressed in the following model: Audit risk = _____________________________ x _________________________________.

Generally accepted auditing standards state that analytical procedures

The existence of audit risk is recognized by the statement in the auditor's standard report that the

The analytical procedures completed during the planning stages typically would not include comparison of current-year account balances with

Auditors ___________ choose to rely almost exclusively on evidence produced by substantive procedures,especially when _____________________________ risk and _____________________________ risk are high.

Inherent risk is the

If fictitious credit sales were recorded and the fictitious accounts receivable were later directly written off as bad debt expense