Question 1

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. C

Question 2

Define control risk.

Accepted Answer

Control risk is the risk that the system of internal controls will not prevent fraud or material errors in the financial statements.

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

The three levels at which assertion terms are defined under CAS 315 are:

Accepted Answer

A) Financial statement,account balance level,and transaction level. 
B) Account balance,transaction and presentation and disclosure 
C) Management level,auditor level,and user level. 
D) Account balance,entity,and presentation and disclosure. 
A) Financial statement,account balance level,and transaction level. 
B) Account balance,transaction and presentation and disclosure 
C) Management level,auditor level,and user level. 
D) Account balance,entity,and presentation and disclosure.

Question 5

The audit objective related to existence is to obtain evidence that the asset,liability or equity exists physically or legally.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Which of the following statements concerning financial statement assertions is false?

Accepted Answer

A) They are the claims management makes in presenting its financial statements. 
B) Their appropriate application is determined in reference to GAAP,or the disclosed basis of accounting. 
C) They are directly tied to the audit objectives auditors use to design specific evidence-gathering procedures. 
D) They must be fully disclosed in the notes to the financial statements. 
A) They are the claims management makes in presenting its financial statements. 
B) Their appropriate application is determined in reference to GAAP,or the disclosed basis of accounting. 
C) They are directly tied to the audit objectives auditors use to design specific evidence-gathering procedures. 
D) They must be fully disclosed in the notes to the financial statements.

Question 8

To help achieve good governance,international best practice recommends all but which of the following be implemented?

Accepted Answer

A) A majority the members of the board of directors should not hold management positions. 
B) Create an independent audit committee to oversee the financial reporting process. 
C) Require the internal audit team report directly to management. 
D) Have a compensation committee that aligns management rewards with shareholder interests. 
A) A majority the members of the board of directors should not hold management positions. 
B) Create an independent audit committee to oversee the financial reporting process. 
C) Require the internal audit team report directly to management. 
D) Have a compensation committee that aligns management rewards with shareholder interests.

Question 9

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 10

A completeness error occurs when an account balance is overstated.

Accepted Answer

A) True 
 B)False

Question 11

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 12

An auditor assesses management's ability to identify and respond to its business risks because:

Accepted Answer

A) It reduces the auditor's risk of accepting the audit engagement 
B) It reduces the amount of planned audit evidence. 
C) It reduces the risk of material misstatement at the financial statement level. 
D) It reduces the preliminary assessment of materiality. 
A) It reduces the auditor's risk of accepting the audit engagement 
B) It reduces the amount of planned audit evidence. 
C) It reduces the risk of material misstatement at the financial statement level. 
D) It reduces the preliminary assessment of materiality.

Question 13

The only component of audit risk that the auditor can directly influence is detection risk.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements concerning the audit risk model is false?

Accepted Answer

A) It is used to determine the planned level of substantive audit testing to be performed in the audit. 
B) It is useful as a planning tool at the beginning of the audit. 
C) It is applied at both the financial statement and individual account and financial statement assertion levels. 
D) It allows the auditor to accurately quantify the level of audit risk. 
A) It is used to determine the planned level of substantive audit testing to be performed in the audit. 
B) It is useful as a planning tool at the beginning of the audit. 
C) It is applied at both the financial statement and individual account and financial statement assertion levels. 
D) It allows the auditor to accurately quantify the level of audit risk.

Question 16

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 17

An auditor examines an organization's strategy to determine its objectives.After assessing whether the strategy is guiding the whole operation,what steps will the auditor take next? What key management assertion can be affected by any weakness in the strategy?

Accepted Answer

An auditor must consider whether the str

Question 18

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 19

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 20

To ensure that a high level of assurance is provided by the audit opinion,what must the auditor do?

Accepted Answer

A) Plan and execute the audit to ensure an acceptably low risk of material misstatement is achieved. 
B) Plan and execute the audit to ensure an acceptably low level of audit risk is achieved. 
C) Plan and execute the audit to ensure an acceptably low level of inherent risk is achieved. 
D) Plan and execute the audit to ensure an acceptably low level of detection risk is achieved. 
A) Plan and execute the audit to ensure an acceptably low risk of material misstatement is achieved. 
B) Plan and execute the audit to ensure an acceptably low level of audit risk is achieved. 
C) Plan and execute the audit to ensure an acceptably low level of inherent risk is achieved. 
D) Plan and execute the audit to ensure an acceptably low level of detection risk is achieved.

Exam 6: Assessing Risks in an Audit Engagement

What is inherent risk?

Define control risk.

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.

The three levels at which assertion terms are defined under CAS 315 are:

The audit objective related to existence is to obtain evidence that the asset,liability or equity exists physically or legally.

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

Which of the following statements concerning financial statement assertions is false?

To help achieve good governance,international best practice recommends all but which of the following be implemented?

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

A completeness error occurs when an account balance is overstated.

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

An auditor assesses management's ability to identify and respond to its business risks because:

The only component of audit risk that the auditor can directly influence is detection risk.

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

Which of the following statements concerning the audit risk model is false?

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 ________.

An auditor examines an organization's strategy to determine its objectives.After assessing whether the strategy is guiding the whole operation,what steps will the auditor take next? What key management assertion can be affected by any weakness in the strategy?

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

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

To ensure that a high level of assurance is provided by the audit opinion,what must the auditor do?

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 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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