Question 1

Can an auditor place complete reliance on internal control to the exclusion of other audit procedures? Explain your answer using the audit risk model.

Accepted Answer

An auditor cannot place complete relianc

Question 2

Two broad groupings of controls are ________.

Accepted Answer

A) internal controls and segregation of duties 
B) physical access controls and password controls 
C) validity checks and completeness checks 
D) general controls and application controls 
A) internal controls and segregation of duties 
B) physical access controls and password controls 
C) validity checks and completeness checks 
D) general controls and application controls

Question 3

An auditor might suspect that the auditee is in financial difficulty if ________.

Accepted Answer

A) the auditee offers more generous customer credit terms 
B) the auditee takes a large bank loan at market rates 
C) sales increase and inventory increases 
D) purchases increase and payables increase 
A) the auditee offers more generous customer credit terms 
B) the auditee takes a large bank loan at market rates 
C) sales increase and inventory increases 
D) purchases increase and payables increase

Question 4

What are four of the elements of the internal control environment?

Accepted Answer

The following are elements of the intern

Question 5

What is inherent risk?

Accepted Answer

A) The probability that some accounts are more susceptible to misstatement than others. 
B) The probability that the client's internal control policies and procedures will fail to detect material misstatements. 
C) The probability that material misstatements have occurred in transactions entering the accounting system used to develop financial statements. 
D) The probability that the auditor may not detect material misstatements in the financial statements. 
A) The probability that some accounts are more susceptible to misstatement than others. 
B) The probability that the client's internal control policies and procedures will fail to detect material misstatements. 
C) The probability that material misstatements have occurred in transactions entering the accounting system used to develop financial statements. 
D) The probability that the auditor may not detect material misstatements in the financial statements.

Question 6

Detection risk is the probability that audit procedures will produce evidence of material misstatements.

Accepted Answer

A) True 
 B)False

Question 7

The probability that an auditor will give an inappropriate opinion on the financial statements best describes ________.

Accepted Answer

A) audit risk 
B) inherent risk 
C) control risk 
D) detection risk 
A) audit risk 
B) inherent risk 
C) control risk 
D) detection risk

Question 8

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 9

Define application controls and provide examples.

Accepted Answer

Application controls are viewed in terms

Question 10

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 11

The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when,in fact,such misstatement actually does exist is ________.

Accepted Answer

A) audit risk 
B) inherent risk 
C) control risk 
D) detection risk 
A) audit risk 
B) inherent risk 
C) control risk 
D) detection risk

Question 12

Risk should not be tolerated on a cost-benefit basis.

Accepted Answer

A) True 
 B)False

Question 13

There are two parts to business risk analysis: process analysis and industry analysis.

Accepted Answer

A) True 
 B)False

Question 14

According to the Criteria of Control Guidance on Control,what are four values and preferences of senior management that can greatly influence an organization?

Accepted Answer

Values and preferences of senior managem

Question 15

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 16

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 17

Internal control includes ________.

Accepted Answer

A) control activities and inherent risks 
B) information systems and external influences 
C) the control environment and risk assessment processes 
D) financial reporting and control activities 
A) control activities and inherent risks 
B) information systems and external influences 
C) the control environment and risk assessment processes 
D) financial reporting and control activities

Question 18

What is the connection between communication and internal control?

Accepted Answer

Communication involves providing an unde

Question 19

Discuss four ways of managing risk in an organization.

Accepted Answer

Risks can be managed in any of four ways

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 6: Assessing Risks in an Audit Engagement

Can an auditor place complete reliance on internal control to the exclusion of other audit procedures? Explain your answer using the audit risk model.

Two broad groupings of controls are ________.

An auditor might suspect that the auditee is in financial difficulty if ________.

What are four of the elements of the internal control environment?

What is inherent risk?

Detection risk is the probability that audit procedures will produce evidence of material misstatements.

The probability that an auditor will give an inappropriate opinion on the financial statements best describes ________.

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?

Define application controls and provide examples.

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

The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when,in fact,such misstatement actually does exist is ________.

Risk should not be tolerated on a cost-benefit basis.

There are two parts to business risk analysis: process analysis and industry analysis.

According to the Criteria of Control Guidance on Control,what are four values and preferences of senior management that can greatly influence 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 ________.

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

Internal control includes ________.

What is the connection between communication and internal control?

Discuss four ways of managing risk in an organization.

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

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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