Question 1

Give some examples of cut off errors and explain what management assertions are affected by such errors.

Accepted Answer

An example of a cutoff error would be if sales that were shipped after year-end were recorded in sales for the year. Another example would be if expenses for which no invoice has been received are not recorded as a liability. The management assertions affected are completeness and existence or occurrence.

Question 2

The business process view also highlights the fact that business organizations ________.

Accepted Answer

A)  differ in terms of the technology they use 
B)  essentially all perform the same activities 
C)  should simplify their business to follow clear rules 
D)  work best when run as a hierarchy 
A)  differ in terms of the technology they use 
B)  essentially all perform the same activities 
C)  should simplify their business to follow clear rules 
D)  work best when run as a hierarchy A

Question 3

What is the definition of business risk?

Accepted Answer

A)  An event or action that will make it more difficult for an organization to achieve its objectives. 
B)  An event or action that causes an organization to become bankrupt. 
C)  An event or action that causes an organization's financial statements to be materially incorrect. 
D)  Unfortunate events or actions that are common to all businesses in the economy. 
A)  An event or action that will make it more difficult for an organization to achieve its objectives. 
B)  An event or action that causes an organization to become bankrupt. 
C)  An event or action that causes an organization's financial statements to be materially incorrect. 
D)  Unfortunate events or actions that are common to all businesses in the economy. A

Question 4

Business processes cross boundaries between functional areas of an organization. Business process management systems have been facilitated by _______.

Accepted Answer

A)  management information systems 
B)  enterprise resource planning systems 
C)  database management systems 
D)  Web-based application systems 
A)  management information systems 
B)  enterprise resource planning systems 
C)  database management systems 
D)  Web-based application systems

Question 5

Business processes can be thought of as a structured set of activities within an entity.

Accepted Answer

A) True 
 B)False

Question 6

After obtaining an understanding of the internal control system and assessing control risk, an auditor decided not to perform additional tests of controls. The auditor most likely concluded that ________.

Accepted Answer

A)  the additional evidence to support a further reduction in control risk was not cost-beneficial 
B)  the assessed level of inherent risk exceeded the assessed level of control risk 
C)  the internal control system was properly designed and justifiably may be relied on 
D)  the evidence obtainable through tests of controls would not support an increased level of control risk 
A)  the additional evidence to support a further reduction in control risk was not cost-beneficial 
B)  the assessed level of inherent risk exceeded the assessed level of control risk 
C)  the internal control system was properly designed and justifiably may be relied on 
D)  the evidence obtainable through tests of controls would not support an increased level of control risk

Question 7

Auditors find it easier to audit related accounts instead of attacking each account on its own.

Accepted Answer

A) True 
 B)False

Question 8

Audit risk is the probability that an auditor will give an inappropriate opinion on financial statements.

Accepted Answer

A) True 
 B)False

Question 9

The audit objective specifying that "all recorded assets, liabilities, and transactions represent real assets, liabilities, revenues, and expenses" is related most closely to which assertion(s)?

Accepted Answer

A)  Existence or occurrence. 
B)  Rights and obligations. 
C)  Completeness. 
D)  Presentation and disclosure. 
A)  Existence or occurrence. 
B)  Rights and obligations. 
C)  Completeness. 
D)  Presentation and disclosure.

Question 10

A completeness error occurs when an account balance is overstated.

Accepted Answer

A) True 
 B)False

Question 11

Control risk is the probability that audit procedures will fail to detect material misstatements in the financial statements.

Accepted Answer

A) True 
 B)False

Question 12

If control risk increases and all other risks in the audit risk model stay constant (except the one referred to below), which of the following is correct?

Accepted Answer

A)  Detection risk must increase. 
B)  Inherent risk will increase. 
C)  Audit risk will decrease. 
D)  Detection risk must decrease. 
A)  Detection risk must increase. 
B)  Inherent risk will increase. 
C)  Audit risk will decrease. 
D)  Detection risk must decrease.

Question 13

An auditor considers two factors in understanding business risks. What are they?

Accepted Answer

A)  The likelihood of a risk occurring and the materiality of the risk. 
B)  The magnitude of the risk and the type of risk. 
C)  The likelihood of the risk occurring and the type of risk. 
D)  The likelihood of a risk occurring and the magnitude the risk. 
A)  The likelihood of a risk occurring and the materiality of the risk. 
B)  The magnitude of the risk and the type of risk. 
C)  The likelihood of the risk occurring and the type of risk. 
D)  The likelihood of a risk occurring and the magnitude the risk.

Question 14

An auditor begins the identification of business risks by doing what?

Accepted Answer

A)  Preliminary analysis. 
B)  Financial analysis. 
C)  Strategic analysis. 
D)  Horizontal analysis. 
A)  Preliminary analysis. 
B)  Financial analysis. 
C)  Strategic analysis. 
D)  Horizontal analysis.

Question 15

Theoretically, when assessing the inherent risk related to an account balance, an auditor does not explicitly consider the ________.

Accepted Answer

A)  liquidity of the account 
B)  management estimates involved in determining the account balance 
C)  internal control policies and procedures 
D)  complexity of calculations involved 
A)  liquidity of the account 
B)  management estimates involved in determining the account balance 
C)  internal control policies and procedures 
D)  complexity of calculations involved

Question 16

The valuation assertion includes ________.

Accepted Answer

A)  the measurement assumption used 
B)  ensuring all inventory is counted 
C)  making sure that all receivables relate to sales during the year 
D)  the method of presenting short-term and long-term liabilities 
A)  the measurement assumption used 
B)  ensuring all inventory is counted 
C)  making sure that all receivables relate to sales during the year 
D)  the method of presenting short-term and long-term liabilities

Question 17

Generally accepted auditing standards permit auditors to place complete reliance on internal control (zero control risk assessment) to justify the exclusion of substantive audit procedures for a balance sheet or income statement account.

Accepted Answer

A) True 
 B)False

Question 18

Discuss four ways of managing risk in an organization.

Accepted Answer

Risks can be managed in any of four ways

Question 19

When an auditor increases the planned assessed level of control risk because certain control procedures were determined to be ineffective, the auditor would most likely increase the ________.

Accepted Answer

A)  extent of tests of details 
B)  level of inherent risk 
C)  extent of tests of controls 
D)  level of detection risk 
A)  extent of tests of details 
B)  level of inherent risk 
C)  extent of tests of controls 
D)  level of detection risk

Question 20

Quality of earnings refers to ________.

Accepted Answer

A)  the accuracy of the net income calculation 
B)  a company's ability to continue earning at its current level 
C)  how closely earnings per share agree to analyst predictions 
D)  the percentage of net income to total revenue 
A)  the accuracy of the net income calculation 
B)  a company's ability to continue earning at its current level 
C)  how closely earnings per share agree to analyst predictions 
D)  the percentage of net income to total revenue

Exam 6: Assessing Risks in an Audit Engagement

Give some examples of cut off errors and explain what management assertions are affected by such errors.

The business process view also highlights the fact that business organizations ________.

What is the definition of business risk?

Business processes cross boundaries between functional areas of an organization. Business process management systems have been facilitated by _______.

Business processes can be thought of as a structured set of activities within an entity.

After obtaining an understanding of the internal control system and assessing control risk, an auditor decided not to perform additional tests of controls. The auditor most likely concluded that ________.

Auditors find it easier to audit related accounts instead of attacking each account on its own.

Audit risk is the probability that an auditor will give an inappropriate opinion on financial statements.

The audit objective specifying that "all recorded assets, liabilities, and transactions represent real assets, liabilities, revenues, and expenses" is related most closely to which assertion(s)?

A completeness error occurs when an account balance is overstated.

Control risk is the probability that audit procedures will fail to detect material misstatements in the financial statements.

If control risk increases and all other risks in the audit risk model stay constant (except the one referred to below), which of the following is correct?

An auditor considers two factors in understanding business risks. What are they?

An auditor begins the identification of business risks by doing what?

Theoretically, when assessing the inherent risk related to an account balance, an auditor does not explicitly consider the ________.

The valuation assertion includes ________.

Generally accepted auditing standards permit auditors to place complete reliance on internal control (zero control risk assessment) to justify the exclusion of substantive audit procedures for a balance sheet or income statement account.

Discuss four ways of managing risk in an organization.

When an auditor increases the planned assessed level of control risk because certain control procedures were determined to be ineffective, the auditor would most likely increase the ________.

Quality of earnings refers to ________.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

The Revenues, Receivables, and Receipts Process and Cash Account Balance

The Purchases, Payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

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