Question 1

Management's philosophy and operating style have to do with how the business is operated and are not part of the internal control environment.

Accepted Answer

A) True 
 B)False  False

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

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  False

Question 4

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.

Question 5

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 6

One way to think of an accounting process is as a cycle.The idea of a cycle reflects that ________.

Accepted Answer

A) transactions have to undergo a series of procedures before being recorded in the accounts 
B) transactions are not complete until they are recorded 
C) there is a set of accounts that record transaction information from the same business process 
D) every business process results in the start of another process 
A) transactions have to undergo a series of procedures before being recorded in the accounts 
B) transactions are not complete until they are recorded 
C) there is a set of accounts that record transaction information from the same business process 
D) every business process results in the start of another process

Question 7

As control risk gets smaller,audit risk gets larger,assuming all other risks stay constant.

Accepted Answer

A) True 
 B)False

Question 8

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 9

An organization with a very hierarchical structure is typical of companies in complex business environments as this structure reduces the ability of a junior employee to make a wrong decision.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

Auditors do not create or control inherent risk;they can only try to assess its magnitude.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Company-level controls can have a big impact on a company's financial reporting.

Accepted Answer

A) True 
 B)False

Question 14

An auditor can broadly define controls as ________.

Accepted Answer

A) those elements of an organization that,taken together,support people in achieving an organization's objectives 
B) those systems,processes,and procedures that prevent fraud 
C) key performance indicators employed by management to measure an organization's success 
D) the structure and culture of an organization which helps to eliminate risk 
A) those elements of an organization that,taken together,support people in achieving an organization's objectives 
B) those systems,processes,and procedures that prevent fraud 
C) key performance indicators employed by management to measure an organization's success 
D) the structure and culture of an organization which helps to eliminate risk

Question 15

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 16

Define control risk.

Accepted Answer

Control risk is the risk that

Question 17

On the basis of audit evidence gathered and evaluated,an auditor decides to increase the assessed level of control risk from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level,the auditor would ________.

Accepted Answer

A) decrease substantive testing 
B) decrease detection risk 
C) increase inherent risk 
D) increase materiality levels 
A) decrease substantive testing 
B) decrease detection risk 
C) increase inherent risk 
D) increase materiality levels

Question 18

Inherent risk and control risk differ from detection risk in that they ________.

Accepted Answer

A) arise from the misapplication of auditing procedures 
B) may be assessed in either quantitative or non-quantitative terms 
C) exist independently of the financial statement audit 
D) can be changed at the auditor's discretion 
A) arise from the misapplication of auditing procedures 
B) may be assessed in either quantitative or non-quantitative terms 
C) exist independently of the financial statement audit 
D) can be changed at the auditor's discretion

Question 19

Since management is most familiar with an organization,they should sit on the board of directors and advise those charged with governance of the organization.

Accepted Answer

A) True 
 B)False

Question 20

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the ________.

Accepted Answer

A) factors that raise doubts about the auditability of the financial statements 
B) operating effectiveness of internal control policies and procedures 
C) risk that material misstatements exist in the financial statements 
D) possibility that the nature and extent of substantive tests may be reduced 
A) factors that raise doubts about the auditability of the financial statements 
B) operating effectiveness of internal control policies and procedures 
C) risk that material misstatements exist in the financial statements 
D) possibility that the nature and extent of substantive tests may be reduced

Exam 6: Assessing Risks in an Audit Engagement

Management's philosophy and operating style have to do with how the business is operated and are not part of the internal control environment.

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

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.

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 _______.

One way to think of an accounting process is as a cycle.The idea of a cycle reflects that ________.

As control risk gets smaller,audit risk gets larger,assuming all other risks stay constant.

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

An organization with a very hierarchical structure is typical of companies in complex business environments as this structure reduces the ability of a junior employee to make a wrong decision.

Quality of earnings refers to ________.

Auditors do not create or control inherent risk;they can only try to assess its magnitude.

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

Company-level controls can have a big impact on a company's financial reporting.

An auditor can broadly define controls as ________.

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

Define control risk.

On the basis of audit evidence gathered and evaluated,an auditor decides to increase the assessed level of control risk from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned audit risk level,the auditor would ________.

Inherent risk and control risk differ from detection risk in that they ________.

Since management is most familiar with an organization,they should sit on the board of directors and advise those charged with governance of the organization.

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the ________.

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

hapter 15 Completing the Audit Work

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

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud Auditing

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