Question 1

The tendency to exaggerate the inevitability of causal sequences is known as the availability heuristic.

Accepted Answer

A) True 
 B)False

Question 2

The difference between what was reported and what should have been reported,an auditor's traditional perspective of misstatement,is the basis of the concept of auditing risk.

Accepted Answer

A) True 
 B)False

Question 3

The actual monetary amount which results from resolution of the underlying transaction(s),event(s),or condition(s)addressed by the accounting estimate is known as ________.

Accepted Answer

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

Question 4

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 5

Accounting estimate nirvana is ________.

Accepted Answer

A) the width of the reasonable range is greater than the material misstatement but not greater than two times the material misstatement,which means an estimate with no significant risk can be found within the reasonable range 
B) the width of the reasonable range is less than or equal to the material misstatement,which means that there is no significant risk for any estimates within the reasonable range 
C) the width of reasonable range is greater than or equal to the material misstatement,which means that there is no significant risk for any estimates within the reasonable range 
D) the width of reasonable range is less than the material misstatement but not greater than two times the material misstatement,which means an estimate with no significant risk can be found within the reasonable range 
A) the width of the reasonable range is greater than the material misstatement but not greater than two times the material misstatement,which means an estimate with no significant risk can be found within the reasonable range 
B) the width of the reasonable range is less than or equal to the material misstatement,which means that there is no significant risk for any estimates within the reasonable range 
C) the width of reasonable range is greater than or equal to the material misstatement,which means that there is no significant risk for any estimates within the reasonable range 
D) the width of reasonable range is less than the material misstatement but not greater than two times the material misstatement,which means an estimate with no significant risk can be found within the reasonable range

Question 6

An Accounting Estimate Problem or "Cockburn's problem" occurs when _______.

Accepted Answer

A) the width of reasonable range is greater than or equal to the material misstatement,which means that there is no significant risk for any estimates within the reasonable range. 
B) The width of reasonable range is greater than two times MM,which means that all values in RR may have significant risk of CAS 540,paragraph 11. 
C) the width of the reasonable range is less than or equal to the material misstatement,which means that there is no significant risk for any estimates within the reasonable range. 
D) the width of the reasonable range is greater than the material misstatement but not greater than two times the material misstatement,which means an estimate with no significant risk can be found within the reasonable range. 
A) the width of reasonable range is greater than or equal to the material misstatement,which means that there is no significant risk for any estimates within the reasonable range. 
B) The width of reasonable range is greater than two times MM,which means that all values in RR may have significant risk of CAS 540,paragraph 11. 
C) the width of the reasonable range is less than or equal to the material misstatement,which means that there is no significant risk for any estimates within the reasonable range. 
D) the width of the reasonable range is greater than the material misstatement but not greater than two times the material misstatement,which means an estimate with no significant risk can be found within the reasonable range.

Question 7

Under the risk-based reasoning system for accounting estimates,there are three possible ranges or regions of probabilities of payoffs to consider.What are they and what do they each mean?

Accepted Answer

The simplest reporting system based on a

Question 8

The risk of misstatement arising from estimation uncertainty due to future events is known as accounting risk.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

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

Accepted Answer

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

Question 11

Generally accepted accounting principles are based on the going-concern concept.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 14

What are the three types of misstatements according to CAS 540?

Accepted Answer

There are three types of misstatements:

Question 15

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 16

Which of the following statements concerning accounting risk (AccR)is FALSE?

Accepted Answer

A) Estimation of AccR requires knowledge of the auditee's business and industry. 
B) AccR is largely dependent on factors outside the control of both the auditor and auditee. 
C) AccR can best be estimated using the uniform distribution assumption to calculate the reasonable range. 
D) AccR and Audit Risk (AuR)are largely dependent on one another. 
A) Estimation of AccR requires knowledge of the auditee's business and industry. 
B) AccR is largely dependent on factors outside the control of both the auditor and auditee. 
C) AccR can best be estimated using the uniform distribution assumption to calculate the reasonable range. 
D) AccR and Audit Risk (AuR)are largely dependent on one another.

Question 17

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 18

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 19

Calibration is achieved through repetition and feedback,which improves the quality of expert's estimates.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

The RBR matrix is an attempt to summariz

Exam 19: The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

The tendency to exaggerate the inevitability of causal sequences is known as the availability heuristic.

The difference between what was reported and what should have been reported,an auditor's traditional perspective of misstatement,is the basis of the concept of auditing risk.

The actual monetary amount which results from resolution of the underlying transaction(s),event(s),or condition(s)addressed by the accounting estimate is known as ________.

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

Accounting estimate nirvana is ________.

An Accounting Estimate Problem or "Cockburn's problem" occurs when _______.

Under the risk-based reasoning system for accounting estimates,there are three possible ranges or regions of probabilities of payoffs to consider.What are they and what do they each mean?

The risk of misstatement arising from estimation uncertainty due to future events is known as accounting risk.

Which of the following statements regarding calibration is FALSE?

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

Generally accepted accounting principles are based on the going-concern concept.

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

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

What are the three types of misstatements according to CAS 540?

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

Which of the following statements concerning accounting risk (AccR)is FALSE?

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

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.

Calibration is achieved through repetition and feedback,which improves the quality of expert's estimates.

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

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 the Audit 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 Auditing

Filters