Question 1

Which of the following statements regarding the risk-based reasoning (RBR) matrix is FALSE?

Accepted Answer

A)  The RBR matrix is an attempt to summarize all the possibilities of accounting uncertainties that an auditor may encounter and classify them by reporting types. 
B)  The RBR matrix focuses on AudR levels. 
C)  Under the RBR system of risk-based reasoning for accounting estimates, there are three possible ranges or regions of probabilities of payoffs to consider. 
D)  The main use of the RBR matrix is to provide a convenient decision aid for any reporting situation involving future events. 
A)  The RBR matrix is an attempt to summarize all the possibilities of accounting uncertainties that an auditor may encounter and classify them by reporting types. 
B)  The RBR matrix focuses on AudR levels. 
C)  Under the RBR system of risk-based reasoning for accounting estimates, there are three possible ranges or regions of probabilities of payoffs to consider. 
D)  The main use of the RBR matrix is to provide a convenient decision aid for any reporting situation involving future events. B

Question 2

From Cockburn's perspective, which of the following statements is FALSE?

Accepted Answer

A)  Reasonable ranges were getting too narrow. 
B)  Reasonable ranges were getting too wide. 
C)  Reasonable ranges are crucial for deciding if there is a misstatement in accounting estimates. 
D)  Auditors must consider the riskiness of the accounting estimates. 
A)  Reasonable ranges were getting too narrow. 
B)  Reasonable ranges were getting too wide. 
C)  Reasonable ranges are crucial for deciding if there is a misstatement in accounting estimates. 
D)  Auditors must consider the riskiness of the accounting estimates. A

Question 3

Under the RBR system of risk-based reasoning for accounting estimates, in the ________ region, the probability of payoff is 1.00 to (one minus acceptable AccR).

Accepted Answer

A)  ignore 
B)  record 
C)  heuristic 
D)  disclose 
A)  ignore 
B)  record 
C)  heuristic 
D)  disclose B

Question 4

Which of the following statements regarding audit risk (AudR) and accounting risk (AccR) is FALSE?

Accepted Answer

A)  AccR is largely geared to reflect business risks of the auditee. 
B)  AccR is the material difference between an estimate involving future events and its outcome. 
C)  AudR is something that is relevant to the auditee but not to the auditor. 
D)  The auditor has to consider both AudR and AccR and somehow combine them using professional judgment. 
A)  AccR is largely geared to reflect business risks of the auditee. 
B)  AccR is the material difference between an estimate involving future events and its outcome. 
C)  AudR is something that is relevant to the auditee but not to the auditor. 
D)  The auditor has to consider both AudR and AccR and somehow combine them using professional judgment.

Question 5

Risks associated with forecasting future outcomes or events in accounting estimates are increasingly recognized as the biggest source of error in accounting estimates.

Accepted Answer

A) True 
 B)False

Question 6

CIFiR's (SEC established Advisory Committee on Improvements to Financial Reporting) progress report proposes a framework for accounting judgments consisting of which two components?

Accepted Answer

A)  A critical and good-faith thought process and documentation. 
B)  Calibration and estimation. 
C)  Professional accounting judgment and professional auditing judgment. 
D)  Heuristics and accounting risk. 
A)  A critical and good-faith thought process and documentation. 
B)  Calibration and estimation. 
C)  Professional accounting judgment and professional auditing judgment. 
D)  Heuristics and accounting risk.

Question 7

It is "reasonable" to assume the going-concern assumption for financial reporting when the degree of doubt is no higher than ________.

Accepted Answer

A)  50% 
B)  80% 
C)  20% 
D)  10% 
A)  50% 
B)  80% 
C)  20% 
D)  10%

Question 8

An approximation of a monetary amount in the absence of a precise means of measurement is known as ________.

Accepted Answer

A)  estimation uncertainty 
B)  an accounting estimate 
C)  management bias 
D)  management's point estimate 
A)  estimation uncertainty 
B)  an accounting estimate 
C)  management bias 
D)  management's point estimate

Question 9

A lack of neutrality by management in the preparation and presentation of information is known as estimation uncertainty.

Accepted Answer

A) True 
 B)False

Question 10

In CAS 540, quantified uncertainty is referred to as probability or risk.

Accepted Answer

A) True 
 B)False

Question 11

Misstatements are defined as the difference between ________ and the nearest point of the reasonable range.

Accepted Answer

A)  management's point estimate 
B)  the auditor's point estimate 
C)  estimation uncertainty 
D)  the outcome of an accounting estimate 
A)  management's point estimate 
B)  the auditor's point estimate 
C)  estimation uncertainty 
D)  the outcome of an accounting estimate

Question 12

What is a risk-based reasoning (RBR) matrix and what is it used for?

Accepted Answer

The RBR matrix is an attempt to summariz

Question 13

Generally accepted accounting principles are based on the going-concern concept. Thus, an opinion that financial statements are in conformity with GAAP means that continued existence may be presumed for a "reasonable time", which is considered to be ________.

Accepted Answer

A)  at least one year beyond the date of the financial statements 
B)  at least six months beyond the date of the financial statements 
C)  at least two years beyond the date of the financial statements 
D)  at least five years beyond the date of the financial statements 
A)  at least one year beyond the date of the financial statements 
B)  at least six months beyond the date of the financial statements 
C)  at least two years beyond the date of the financial statements 
D)  at least five years beyond the date of the financial statements

Question 14

Provide an example to illustrate what is meant by a reasonable estimate and what a misstatement is relative to an estimate according to AuG-41.

Accepted Answer

The auditor's analysis of specific accou

Question 15

An auditor's analysis of specific accounts receivable and recent trends in bad debt losses as a percent of sales may cause the auditor to conclude that the allowance for doubtful accounts should be between $130,000 and $160,000. If management's recorded estimate falls within that range, the auditor ordinarily would conclude that the recorded amount is reasonable, and no difference would be aggregated. If management's recorded estimate is $110,000, how much would be aggregated as a misstatement?

Accepted Answer

A)  $0. 
B)  $30,000. 
C)  $20,000. 
D)  $110,000. 
A)  $0. 
B)  $30,000. 
C)  $20,000. 
D)  $110,000.

Question 16

The risk-based reasoning (RBR) matrix is an attempt to summarize all the possibilities of accounting uncertainties that an auditor may encounter and classify them by reporting types.

Accepted Answer

A) True 
 B)False

Question 17

There are huge pressures on the auditor from management regarding recording of estimates because such estimates are essentially subjective in nature, and the major source of disagreement is likely the assumptions made about future-event outcomes.

Accepted Answer

A) True 
 B)False

Question 18

The prediction that people estimate frequency or probability by the ease with which instances or occurrences of the event can be brought to mind is known as the ________.

Accepted Answer

A)  heuristic bias 
B)  availability heuristic 
C)  representative heuristic 
D)  halo effect 
A)  heuristic bias 
B)  availability heuristic 
C)  representative heuristic 
D)  halo effect

Question 19

Uncertainty situations may cause audit reports to be modified (qualified) for departures from GAAP.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements regarding calibration is FALSE?

Accepted Answer

A)  A calibrated person is one who, when asked a large number of questions, will get about as many correct as he or she expected. 
B)  An uncalibrated person who is systematically overconfident may be 90% confident of his or her correctness over a large number of questions, where in the end that person will only get 60% or 70% of them correct. 
C)  Calibration is achieved through the use of heuristics, which improves the quality of experts' estimates. 
D)  If the environment is predictable and an expert has learned through calibration training to identify the situations where intuition misleads him or her, then the feedback will have corrected the expert's intuitions. 
A)  A calibrated person is one who, when asked a large number of questions, will get about as many correct as he or she expected. 
B)  An uncalibrated person who is systematically overconfident may be 90% confident of his or her correctness over a large number of questions, where in the end that person will only get 60% or 70% of them correct. 
C)  Calibration is achieved through the use of heuristics, which improves the quality of experts' estimates. 
D)  If the environment is predictable and an expert has learned through calibration training to identify the situations where intuition misleads him or her, then the feedback will have corrected the expert's intuitions.

Which of the following statements regarding the risk-based reasoning (RBR) matrix is FALSE?

From Cockburn's perspective, which of the following statements is FALSE?

Under the RBR system of risk-based reasoning for accounting estimates, in the ________ region, the probability of payoff is 1.00 to (one minus acceptable AccR).

Which of the following statements regarding audit risk (AudR) and accounting risk (AccR) is FALSE?

Risks associated with forecasting future outcomes or events in accounting estimates are increasingly recognized as the biggest source of error in accounting estimates.

CIFiR's (SEC established Advisory Committee on Improvements to Financial Reporting) progress report proposes a framework for accounting judgments consisting of which two components?

It is "reasonable" to assume the going-concern assumption for financial reporting when the degree of doubt is no higher than ________.

An approximation of a monetary amount in the absence of a precise means of measurement is known as ________.

A lack of neutrality by management in the preparation and presentation of information is known as estimation uncertainty.

In CAS 540, quantified uncertainty is referred to as probability or risk.

Misstatements are defined as the difference between ________ and the nearest point of the reasonable range.

What is a risk-based reasoning (RBR) matrix and what is it used for?

Generally accepted accounting principles are based on the going-concern concept. Thus, an opinion that financial statements are in conformity with GAAP means that continued existence may be presumed for a "reasonable time", which is considered to be ________.

Provide an example to illustrate what is meant by a reasonable estimate and what a misstatement is relative to an estimate according to AuG-41.

The risk-based reasoning (RBR) matrix is an attempt to summarize all the possibilities of accounting uncertainties that an auditor may encounter and classify them by reporting types.

There are huge pressures on the auditor from management regarding recording of estimates because such estimates are essentially subjective in nature, and the major source of disagreement is likely the assumptions made about future-event outcomes.

The prediction that people estimate frequency or probability by the ease with which instances or occurrences of the event can be brought to mind is known as the ________.

Uncertainty situations may cause audit reports to be modified (qualified) for departures from GAAP.

Which of the following statements regarding calibration is FALSE?

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

Assessing Risks in an Audit Engagement

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

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

Filters

Exam 19: Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Which of the following statements regarding the risk-based reasoning (RBR) matrix is FALSE?

From Cockburn's perspective, which of the following statements is FALSE?

Under the RBR system of risk-based reasoning for accounting estimates, in the ________ region, the probability of payoff is 1.00 to (one minus acceptable AccR).

Which of the following statements regarding audit risk (AudR) and accounting risk (AccR) is FALSE?

Risks associated with forecasting future outcomes or events in accounting estimates are increasingly recognized as the biggest source of error in accounting estimates.

CIFiR's (SEC established Advisory Committee on Improvements to Financial Reporting) progress report proposes a framework for accounting judgments consisting of which two components?

It is "reasonable" to assume the going-concern assumption for financial reporting when the degree of doubt is no higher than ________.

An approximation of a monetary amount in the absence of a precise means of measurement is known as ________.

A lack of neutrality by management in the preparation and presentation of information is known as estimation uncertainty.

In CAS 540, quantified uncertainty is referred to as probability or risk.

Misstatements are defined as the difference between ________ and the nearest point of the reasonable range.

What is a risk-based reasoning (RBR) matrix and what is it used for?

Generally accepted accounting principles are based on the going-concern concept. Thus, an opinion that financial statements are in conformity with GAAP means that continued existence may be presumed for a "reasonable time", which is considered to be ________.

Provide an example to illustrate what is meant by a reasonable estimate and what a misstatement is relative to an estimate according to AuG-41.

The risk-based reasoning (RBR) matrix is an attempt to summarize all the possibilities of accounting uncertainties that an auditor may encounter and classify them by reporting types.

There are huge pressures on the auditor from management regarding recording of estimates because such estimates are essentially subjective in nature, and the major source of disagreement is likely the assumptions made about future-event outcomes.

The prediction that people estimate frequency or probability by the ease with which instances or occurrences of the event can be brought to mind is known as the ________.

Uncertainty situations may cause audit reports to be modified (qualified) for departures from GAAP.

Which of the following statements regarding calibration is FALSE?

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

Assessing Risks in an Audit Engagement

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

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

Filters