Deck 2: The Audit Planning Process: Understanding the Risk of Material Misstatement

Question 1

During the planning process,the auditor determines the overall audit strategy for the audit.This strategy establishes the scope,timing,and direction of the audit and guides the auditor when he prepares the audit plan.

Answer 1

True

Question 2

The audit plan will be used to gather sufficient appropriate evidence to reduce audit risk to a near zero level.

Answer 2

False

Question 3

Audit risk determines the amount of evidence gathered.The amount of evidence gathered determines the audit fees.

Answer 3

True

Question 4

A material misstatement is an error or fraud in the financial statements that might cause a user of the financial statements to change his opinion about the company.

Question 5

Which of the following statements is correct about the objective of the audit process?

A)Generally accepted auditing standards require the auditor to obtain reasonable assurance about whether the financial statements are free from material misstatements.
B)Assurance is obtained by the auditor when he has obtained sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
C)A misstatement is an error or fraud in the financial statements that might cause a user of the financial statements to change his decision about the company.
D)Sufficient appropriate audit evidence refers to the persuasiveness of the evidence gathered.

Question 6

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America or international financial reporting standards.

Question 7

The purpose of the audit is to increase the level of confidence that users of financial statements can place on financial statements.

Question 8

The auditing standards determine how an auditor describes if the procedures for an audit are present.

Question 9

The auditing standards describe how an auditor determines if the preconditions for an audit are present.Which of the following would be a precondition for an audit?

A)The auditor obtains the agreement of management that it acknowledges and understands its responsibility for the preparation of the financial statements in accordance with the financial reporting framework.
B)The auditor obtains the agreement from management that it acknowledges and understands its responsibility for internal controls so financial statements can be prepared free of material misstatement.
C)The auditor obtains the agreement of management that it agrees to provide the auditor with all information that management is aware of that might be relevant to the preparation of the financial statements.
D)The auditor determines whether the financial reporting framework (the set of internal control standards)used by the client to prepare the financial statements is acceptable.

Question 10

Relevant assertions are assertions made by the auditor about the financial statements of the company that have a reasonable possibility of containing a misstatement that would cause the statements to be misstated.

Question 11

The auditor should document the audit strategy in the audit report containing the key decisions about the scope,timing,and conduct of the audit.

Question 12

Which of the following are the three main parts of the audit process?

A)(1)The planning process, (2)The testing process,and (3)The reporting process.
B)(1)The planning process, (2)The testing process,and (3)The decision process.
C)(1)The planning process, (2)The evaluation process,and (3)The decision process.
D)(1)The risk assessment process, (2)The testing process,and (3)The decision process.

Question 13

The auditing standards describe how an auditor determines if the preconditions for an audit are present.Which of the following would be a precondition for an audit?

A)The auditor obtains the agreement of management that it acknowledges and understands its responsibility for the issuing of the financial statements in accordance with the financial reporting framework.
B)The auditor obtains the agreement from management that it acknowledges and understands its responsibility for internal controls so financial statements can be prepared free of material misstatement.
C)The auditor obtains the agreement of management that it agrees to provide the auditor with all information that management is aware of that might be relevant to the preparation of the financial statements.
D)The auditor determines whether the financial reporting framework (the set of accounting standards)used by the client to prepare the financial statements is acceptable.

Question 14

Which of the following statements is correct about the objective of the audit process?

A)Generally accepted auditing standards require the auditor to obtain assurance about whether the financial statements are free from all misstatements.
B)Reasonable assurance is obtained by the auditor when he has obtained sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
C)A misstatement is an error or fraud in the financial statements that might cause a user of the financial statements to change his decision about the company.
D)Sufficient appropriate audit evidence refers to the persuasiveness of the evidence gathered.

Question 15

In the planning stage,one of the objectives of the auditor is to identify and assess the risk of material misstatement.

Question 16

Which of the following statements is correct about the objective of the audit process?

A)Generally accepted auditing standards require the auditor to obtain assurance about whether the financial statements are free from all misstatements.
B)Assurance is obtained by the auditor when he has obtained sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
C)A material misstatement is an error or fraud in the financial statements that might cause a user of the financial statements to change his decision about the company.
D)Sufficient appropriate audit evidence refers to the persuasiveness of the evidence gathered.

Question 17

Because client information is confidential (according to many state statutes),the predecessor auditor will not respond to the request for information about the client without the client's written permission.

Question 18

Which of the following statements is correct about the objective of the audit process?

A)Generally accepted auditing standards require the auditor to obtain assurance about whether the financial statements are free from all misstatements.
B)Assurance is obtained by the auditor when he has obtained sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
C)A misstatement is an error or fraud in the financial statements that might cause a user of the financial statements to change his decision about the company.
D)Sufficient appropriate audit evidence refers to the quantity and quality of the evidence gathered.

Question 19

Audit risk is defined as

A)the risk that the auditor issues an opinion saying that the financial statements are not materially misstated when they are.
B)the risk that the auditor fails to issue an opinion saying that the financial statements are materially misstated when they are.
C)the risk that the auditor does not detect a material misstatement in the financial statements.
D)the risk that the auditor does detect a material misstatement in the financial statements but fails to report the material misstatement.
E)the risk that the auditor issues an opinion saying that the financial statements are materially misstated when they are not.

Question 20

When an accounting firm establishes a system of quality control,the firm's objective is to obtain assurance that the firm complied with applicable legal and regulatory requirements.

Question 21

When an auditor agrees to perform an audit because the preconditions for an audit have been met and the auditor believes that he can gather sufficient appropriate audit evidence to reduce audit risk to an acceptably low level,an engagement letter is prepared.The engagement letter includes:

A)the basis on which fees are computed are based on an unqualified audit opinion.
B)arrangements regarding the methods of testing of the audit,including the composition of the audit team.
C)arrangements concerning the involvement of other auditors and specialists in the audit.
D)arrangements concerning the opinions of internal auditors and other staff of the company.
E)arrangements to be made with the predecessor auditor in the case of a follow up audit.

Question 22

Step 2 of the planning process is the risk assessment phase.At this stage of the planning process the objective of the auditor is to identify and assess the risk of material misstatement.The auditor does this by

A)gaining an understanding of the company and its management,including the company's financial controls
B)gaining an understanding of the company's industry,including the company's competition
C)determining materiality
D)determining risk assessment procedures to assess the risk of material misstatement at the financial statement and assertion level

Question 23

When an auditor agrees to perform an audit because the preconditions for an audit have been met and the auditor believes that he can gather sufficient appropriate audit evidence to reduce audit risk to an acceptably low level,an engagement letter is prepared.The engagement letter includes:

A)the basis on which fees are computed are based on an unqualified audit opinion.
B)arrangements regarding the methods of testing of the audit,including the composition of the audit team.
C)arrangements concerning the opinions of other auditors and specialists in the audit.
D)arrangements concerning the opinions of internal auditors and other staff of the company.
E)arrangements to be made with the predecessor auditor in the case of an initial audit.

Question 24

In the request for information from the predecessor auditor,the new auditor may ask for information about the following item

A)the integrity of those charged with governance.
B)disagreements with management about the fee payment schedule.
C)communications to those charged with governance regarding fraud and noncompliance with laws or regulations by the company.
D)communications to management and those charged with governance regarding significant deficiencies and material weaknesses in financial reporting.

Question 25

When an auditor agrees to perform an audit because the preconditions for an audit have been met and the auditor believes that he can gather sufficient appropriate audit evidence to reduce audit risk to an acceptably low level,an engagement letter is prepared.The engagement letter includes:

A)the basis on which fees are computed are based on an unqualified audit opinion.
B)arrangements regarding the methods and testing of the audit,including the composition of the audit team.
C)arrangements concerning the opinions of other auditors and specialists in the audit.
D)arrangements concerning the involvement of internal auditors and other staff of the company.
E)arrangements to be made with the predecessor auditor in the case of a follow up audit.

Question 26

When an auditor agrees to perform an audit because the preconditions for an audit have been met and the auditor believes that he can gather sufficient appropriate audit evidence to reduce audit risk to an acceptably low level,an engagement letter is prepared.The engagement letter includes:

A)the objective and scope of the audit (to express an opinion on particular financial statements).
B)management's assistance (to prepare the financial statements,select accounting policies,establish effective internal controls,design programs to prevent and detect fraud,provide written representation,inform the auditor of subsequent events that may affect the financial statements,and make all financial records and information available to the auditor).
C)the auditor's performance (to conduct the audit in accordance with generally accepted auditing standards and obtain an understanding of the client's internal control).
D)the internal control limitations of an audit engagement (material misstatements may not be detected).

Question 27

The auditing standards describe how an auditor determines if the preconditions for an audit are present.Which of the following would be a precondition for an audit?

A)The auditor obtains the agreement of management that it acknowledges and understands its responsibility for the issuing of the financial statements in accordance with the financial reporting framework.
B)The auditor obtains the agreement from management that it acknowledges and understands its responsibility for internal controls so financial statements can be prepared free of material misstatement.
C)The auditor obtains the agreement of management that it will provide the auditor with all information that management is aware of that might be relevant to the preparation of the financial statements and any other information the auditor may request.
D)The auditor determines whether the financial reporting framework (the set of internal control standards)used by the client to prepare the financial statements is acceptable.

Question 28

Generally accepted auditing standards require the auditor to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptable level.If the auditor determines that he cannot comply with this standard due to the risk level present in the client before the engagement,he will

A)reject the engagement.
B)advise the client on how to reduce the risk level.
C)increase substantive testing to reduce the risk to an acceptable level.
D)increase control testing to reduce the risk to an acceptable level.

Question 29

When an auditor signs an engagement letter

A)the auditor may commence the audit
B)the client has an obligation to pay the audit fee
C)the auditor has a contract to perform the audit
D)the client is attesting to the accuracy of the financial statements

Question 30

Step 2 of the planning process is the risk assessment phase.At this stage of the planning process the objective of the auditor is to identify and assess the risk of material misstatement.The auditor does this by

A)gaining an understanding of the company and its environment,including the company's internal controls
B)gaining an understanding of the company's industry,including the company's competition
C)developing an audit strategy to respond to the risk of material misstatement
D)determining risk assessment procedures to assess the risk of material misstatement at the financial statement and assertion level

Question 31

When an auditor agrees to perform an audit because the preconditions for an audit have been met and the auditor believes that he can gather sufficient appropriate audit evidence to reduce audit risk to an acceptably low level,an engagement letter is prepared.The engagement letter includes:

A)the purpose of the audit (to express an opinion on particular financial statements).
B)management's responsibilities (to prepare the financial statements,select accounting policies,establish effective internal controls,design programs to prevent and detect fraud,provide written representation,inform the auditor of subsequent events that may affect the financial statements,and make all financial records and information available to the auditor).
C)the auditor's performance (to conduct the audit in accordance with generally accepted auditing standards and obtain an understanding of the client's internal control).
D)the internal control limitations of an audit engagement (material misstatements may not be detected).

Question 32

Step 2 of the planning process is the risk assessment phase.At this stage of the planning process the objective of the auditor is to identify and assess the risk of material misstatement.The auditor does this by

A)gaining an understanding of the company and its management,including the company's financial controls
B)gaining an understanding of the company's industry,including the company's competition
C)developing an audit strategy to respond to the risk of material misstatement
D)performing risk assessment procedures to assess the risk of material misstatement at the financial statement and assertion level

Question 33

When an auditor agrees to perform an audit because the preconditions for an audit have been met and the auditor believes that he can gather sufficient appropriate audit evidence to reduce audit risk to an acceptably low level,an engagement letter is prepared.The engagement letter includes:

A)the purpose of the audit (to express an opinion on particular financial statements).
B)management's assistance (to prepare the financial statements,select accounting policies,establish effective internal controls,design programs to prevent and detect fraud,provide written representation,inform the auditor of subsequent events that may affect the financial statements,and make all financial records and information available to the auditor).
C)the auditor's responsibilities (to conduct the audit in accordance with generally accepted auditing standards and obtain an understanding of the client's internal control).
D)the internal control limitations of an audit engagement (material misstatements may not be detected).

Question 34

In the request for information from the predecessor auditor,the new auditor may ask for information about the following item

A)the integrity of management.
B)disagreements with management about the fee payment schedule.
C)communications to management regarding fraud and noncompliance with laws or regulations by the company.
D)communications to management and those charged with governance regarding significant deficiencies and material weaknesses in financial reporting.

Question 35

In the request for information from the predecessor auditor,the new auditor may ask for information about the following item

A)the integrity of those charged with governance.
B)disagreements with management about accounting policies or auditing procedures.
C)communications to management regarding fraud and noncompliance with laws or regulations by the company.
D)communications to management and those charged with governance regarding significant deficiencies and material weaknesses in financial reporting.

Question 36

The auditing standards describe how an auditor determines if the preconditions for an audit are present.Which of the following would be a precondition for an audit?

A)The auditor obtains the agreement of management that it acknowledges and understands its responsibility for the issuing of the financial statements in accordance with the financial reporting framework.
B)The auditor obtains the agreement from management that it acknowledges and understands its responsibility for internal controls so financial statements can be prepared free of misstatement.
C)The auditor obtains the agreement of management that it agrees to provide the auditor with all information that management is aware of that might be relevant to the preparation of the financial statements.
D)The auditor determines whether the financial reporting framework (the set of internal control standards)used by the client to prepare the financial statements is acceptable.

Question 37

When an auditor agrees to perform an audit because the preconditions for an audit have been met and the auditor believes that he can gather sufficient appropriate audit evidence to reduce audit risk to an acceptably low level,an engagement letter is prepared.The engagement letter includes:

A)the purpose of the audit (to express an opinion on particular financial statements).
B)management's assistance (to prepare the financial statements,select accounting policies,establish effective internal controls,design programs to prevent and detect fraud,provide written representation,inform the auditor of subsequent events that may affect the financial statements,and make all financial records and information available to the auditor).
C)the auditor's performance (to conduct the audit in accordance with generally accepted auditing standards and obtain an understanding of the client's internal control).
D)the inherent limitations of an audit engagement (material misstatements may not be detected).

Question 38

How does the auditor gain an understanding of the entity and its environment? The auditing standards require the auditor to understand

A)industry,regulatory and other external factors relevant to the entity
B)the nature of management of the entity,including its operations,ownership and governance structures,the types of investments management makes,and the way the entity is structured and financed
C)management's selection and use of accounting policies,including any changes in these policies
D)management's objectives and strategies and the related business risks that may lead to the risk of material misstatement

Question 39

In the request for information from the predecessor auditor,the new auditor may ask for information about the following item

A)the integrity of those charged with governance.
B)disagreements with management about the fee payment schedule.
C)communications to management regarding fraud and noncompliance with laws or regulations by the company.
D)the predecessor auditor's understanding regarding the reasons for the change of auditors.

Question 40

When an auditor agrees to perform an audit because the preconditions for an audit have been met and the auditor believes that he can gather sufficient appropriate audit evidence to reduce audit risk to an acceptably low level,an engagement letter is prepared.The engagement letter includes:

A)arrangements regarding the planning and performance of the audit,including the composition of the audit team.
B)the basis on which fees are computed are based on an unqualified audit opinion.
C)arrangements concerning the opinions of other auditors and specialists in the audit.
D)arrangements concerning the opinions of internal auditors and other staff of the company.
E)arrangements to be made with the predecessor auditor in the case of a follow up audit.

Question 41

In the planning process,the auditor assesses the risk that misstatements have occurred in the financial statements.The source of misstatements includes

A)inaccuracies in gathering or processing data used to audit the financial statements
B)the use of auditing standards that may be unreasonable or inappropriate
C)differences between the amount or classification of a financial statement item and what should have been reported under generally accepted auditing standards
D)omissions of financial statement explanations
E)financial statement disclosures that are not in accordance with generally accepted accounting principles

Question 42

For internal controls that are relevant to the audit,the auditor should

A)understand incentives of the company to misstate the financial statements
B)identify the relevant financial statement accounts with the greatest potential for misstatements
C)understand the design of the controls and the implementation of the controls
D)design audit procedures to determine that the accounts are fairly presented according to the applicable financial reporting framework

Question 43

To identify the risk of material misstatement,the auditor considers material misstatements at

A)the financial statement level
B)the management assertion level
C)the relevant assertion level
D)the control risk level
E)A and C

Question 44

In planning the audit,the auditor makes decisions about the size of misstatements that will be considered material.These decisions do not allow the auditor to

A)determine the nature,timing,and extent of audit procedures
B)identify and assess the risk of material misstatement
C)determine the nature,timing,and extent of risk assessment procedures
D)establish an amount below which misstatements will always be evaluated as immaterial

Question 45

In planning the audit,the auditor makes decisions about the size of misstatements that will be considered material.These decisions allow the auditor to

A)determine the nature,timing,and extent of inherent risk assessment procedures
B)identify and assess the risk of misstatement
C)determine the nature,timing,and extent of audit procedures
D)establish an amount below which misstatements will always be evaluated as immaterial
E)C and D

Question 46

How does the auditor gain an understanding of the entity and its environment? The auditing standards require the auditor to understand

A)industry,regulatory and other external factors that management deems relevant to the entity
B)the nature of management of the entity,including its operations,ownership and governance structures,the types of investments management makes,and the way the entity is structured and financed
C)management's selection and use of accounting policies,including any changes in these policies
D)the entity's objectives and strategies and the related business risks that may lead to the risk of material misstatement

Question 47

In planning the audit,the auditor makes decisions about the size of misstatements that will be considered material.These decisions allow the auditor to

A)determine the nature,timing,and extent of inherent risk assessment procedures
B)identify and assess the risk of material misstatement
C)determine the nature,timing,and extent of internal control procedures
D)establish an amount below which misstatements will always be evaluated as immaterial

Question 48

In planning the audit,the auditor makes decisions about the size of misstatements that will be considered material.These decisions allow the auditor to

A)determine the nature,timing,and extent of risk assessment procedures
B)identify and assess the risk of misstatement
C)determine the nature,timing,and extent of internal control procedures
D)establish an amount below which misstatements will always be evaluated as immaterial
E)A and D

Question 49

The auditing standards specify that misstatements are considered to be material if

A)they individually or in the aggregate could reasonably be expected to influence the decisions of management
B)they could reasonably be expected to influence the decisions of knowledgeable users of the financial statements
C)the client determines that they could be expected to influence the decisions of outside users of the financial statements
D)they individually or in the aggregate could reasonably be expected to influence the decisions of users of the financial statements

Question 50

Which of the following is not a method that the auditor might use to calculate materiality?

A)based on a decision rule that is a percentage of total sales
B)based on a decision rule that is a percentage of total expenses
C)based on a decision rule that is a percentage of pre-tax income or income from operations
D)based on a decision rule that is a percentage of total assets

Question 51

The determination of materiality is based on

A)generally accepted auditing standards
B)the likelihood of material misstatements being present
C)the professional judgment of the auditor
D)the understanding of the entity's internal controls

Question 52

After the auditor determines materiality for the company,the auditor can determine

A)the accounts where maximum audit testing is required
B)the level of misstatement necessary for the misstatement to be considered material
C)the value of clear and accurate financial disclosures
D)the auditor's responsibility to outside users of financial statements to provide financial information consistent with accounting regulations

Question 53

Once the auditor calculates materiality,he uses the concept of materiality in

A)determining the timing of substantive tests
B)planning and performing the audit
C)evaluating the effect of corrected misstatements on the financial statements
D)determining if there are any deficiencies in internal control
E)B and C

Question 54

How does the auditor gain an understanding of the entity and its environment? The auditing standards require the auditor to understand

A)industry,regulatory and other external factors that management deems relevant to the entity
B)the nature of the entity,including its operations,ownership and governance structures,the types of investments the entity makes,and the way the entity is structured and financed
C)management's selection and use of accounting policies,including any changes in these policies
D)management's objectives and strategies and the related business risks that may lead to the risk of material misstatement

Question 55

How does the auditor gain an understanding of the entity and its environment? The auditing standards require the auditor to understand

A)industry,regulatory and other external factors that management deems relevant to the entity
B)the nature of management of the entity,including its operations,ownership and governance structures,the types of investments management makes,and the way the entity is structured and financed
C)the entity's selection and use of accounting policies,including any changes in these policies
D)management's objectives and strategies and the related business risks that may lead to the risk of material misstatement

Question 56

In the planning process,the auditor assesses the risk that misstatements have occurred in the financial statements.The source of misstatements includes

A)the use of auditing standards that the auditor may consider unreasonable or inappropriate
B)inaccuracies in gathering or processing data used to prepare the financial statements
C)differences between the amount or classification of a financial statement item and what should have been reported under generally accepted auditing standards
D)omissions of financial statement explanations
E)financial statement disclosure that are not in accordance with generally accepted auditing standards

Question 57

In the planning process,the auditor assesses the risk that misstatements have occurred in the financial statements.The source of misstatements includes

A)the use of auditing standards that the auditor may consider unreasonable or inappropriate
B)inaccuracies in gathering or processing data used to audit the financial statements
C)differences between the amount or classification of a financial statement item and what should have been reported under generally accepted accounting principles
D)omissions of financial statement explanations
E)financial statement disclosure that are not in accordance with generally accepted auditing standards

Question 58

In the planning process,the auditor assesses the risk that misstatements have occurred in the financial statements.The source of misstatements includes

A)the use of auditing standards that the auditor may consider unreasonable or inappropriate
B)inaccuracies in gathering or processing data used to prepare the financial statements
C)differences between the amount or classification of a financial statement item and what should have been reported under generally accepted accounting principles
D)omissions of financial statement items
E)financial statement disclosure that are not in accordance with generally accepted auditing standards

Question 59

Once the auditor calculates materiality,he uses the concept of materiality

A)to determine the timing of substantive tests
B)to determine the amount below which misstatements will always be evaluated as immaterial
C)to evaluate the effect of uncorrected misstatements on the financial statements
D)to determine if there are any deficiencies in internal control

Question 60

Internal controls are

A)usually necessary to run the company
B)part of the environment of the client
C)implemented in areas where fraud risk is greatest
D)are only necessary if audit testing is going to rely on them

Question 61

Much of the information regarding material misstatement in the company is obtained from management.However,the auditor may find it useful to talk to employees at different levels of authority such as

A)individuals charged with department governance
B)internal department personnel who perform internal controls
C)in-house legal counsel regarding the risk of incorrect processing
D)employees involved in initiating,processing,or authorizing complex or unusual transactions

Question 62

Performing analytical procedures during the planning process allows the auditor to

A)identify areas where client performance is inconsistent with its expectations
B)develop an audit program to gather evidence regarding internal controls for relevant assertions in significant accounts
C)schedule more time for substantive testing
D)schedule more time for testing of controls

Question 63

The auditor designs the risk assessment procedures that he believes will be effective in assessing the risk of material misstatement for the entity.According to the auditing standards,the risk assessment process should include

A)internal control tests for significant accounts
B)analytical procedures
C)observation of inventory
D)substantive test of transactions

Question 64

Much of the information regarding material misstatement in the company is obtained from management.However,the auditor may find it useful to talk to employees at different levels of authority such as

A)individuals charged with department governance
B)internal department personnel who perform internal controls
C)in-house legal counsel regarding the risk of litigation
D)employees in the shipping or receiving department

Question 65

The auditor performs analytical procedures to

A)increase his understanding of the accounting system
B)identify expected changes between his expectations for the current year and the prior year
C)identify areas where he believes the risk of material misstatement might not be present
D)satisfy the requirement of the auditing standards to use analytical procedures during the planning stage

Question 66

Which of the following is NOT correct about the audit discussion about the susceptibility of the entity's financial statements to material misstatement?

A)the discussion must be done during the planning phase
B)the purpose of the discussion is to allow audit team members gain a better understanding of the potential for misstatement
C)the team determines the audit tests to mitigate the possibility of misstatements
D)the discussion must be documented in the work papers

Question 67

Observation may provide the auditor with useful information to support the information obtained from management and other employees related to the risk of material misstatement.The auditor might observe

A)the entity's operations
B)documents,records and internal control assessments
C)decisions prepared by management
D)the entity's plans and office expenses

Question 68

The auditor can assign a portion of the materiality to individual accounts in the financial statements

A)This is referred to as the auditor using professional judgment
B)This is referred to determining materiality for particular items on the financial statements
C)This is referred to as the tolerable misstatement or performance materiality for an account
D)This is referred to as the auditor obtaining reasonable assurance

Question 69

The auditor performs analytical procedures to

A)increase his understanding of the business
B)identify expected changes between his expectations for the current year and the prior year
C)identify areas where he believes the risk of material misstatement might not be present
D)satisfy the requirement of the auditing standards to use analytical procedures during the testing stage

Question 70

Performing analytical procedures during the planning process allows the auditor to

A)identify areas where client performance is consistent with its expectations
B)develop an audit program to gather evidence regarding financial statement areas that are most likely to be materially misstated
C)schedule more time for substantive testing
D)schedule more time for testing of controls

Question 71

How does the auditor use the information from the risk assessment procedures?

A)the auditor assembles an audit team with appropriate audit skills
B)the auditor insures that appropriate documentation will be gathered during the audit
C)the auditor should determine the audit opinion based on the risk assessment
D)the auditor must design audit procedures to reduce the risk to an acceptably low level

Question 72

The auditor performs analytical procedures to

A)increase his understanding of the accounting system
B)identify expected changes between his expectations for the current year and the prior year
C)identify areas where he believes the risk of material misstatement might be present
D)satisfy the requirement of the auditing standards to use analytical procedures during the testing stage

Question 73

Much of the information regarding material misstatement in the company is obtained from management.However,the auditor may find it useful to talk to employees at different levels of authority such as

A)individuals charged with department governance
B)internal audit personnel who test internal controls
C)in-house legal counsel regarding the risk of incorrect processing
D)employees in the shipping or receiving departments

Question 74

Observation and inspection may provide the auditor with useful information to support the information obtained from management and other employees related to the risk of material misstatement.The auditor might observe or inspect

A)the entity's forecasts
B)documents,records and internal control manuals
C)decisions prepared by management
D)the entity's plans and office expenses

Question 75

Much of the information regarding material misstatement in the company is obtained from management.However,the auditor may find it useful to talk to employees at different levels of authority such as

A)individuals charged with corporate governance
B)the personnel department responsible for hiring competent employees
C)in-house legal counsel regarding the risk of incorrect processing
D)employees in the shipping and receiving departments

Question 76

The auditor designs the risk assessment procedures that he believes will be effective in assessing the risk of material misstatement for the entity.According to the auditing standards,the risk assessment process should include

A)inquiries of management about the risk of material misstatement due to errors or fraud
B)tests of controls
C)observation of inventory
D)substantive test of transactions

Question 77

Observation may provide the auditor with useful information to support the information obtained from management and other employees related to the risk of material misstatement.The auditor might observe or inspect

A)the entity's forecasts
B)documents,records and internal control assessments
C)decisions prepared by management
D)the entity's plant and office facilities

Question 78

The auditor designs the risk assessment procedures that he believes will be effective in assessing the risk of material misstatement for the entity.According to the auditing standards,the risk assessment process should include

A)inquiries of management about the ability of the client to generate sufficient cash to repay debt
B)tests of controls
C)observation and inspection
D)substantive test of transactions

Question 79

The auditor performs analytical procedures to

A)increase his understanding of the accounting system
B)identify unexpected changes between his expectations for the current year and the prior year
C)identify areas where he believes the risk of material misstatement might not be present
D)satisfy the requirement of the auditing standards to use analytical procedures during the testing stage

Question 80

Observation and inspection may provide the auditor with useful information to support the information obtained from management and other employees related to the risk of material misstatement.The auditor might observe or inspect

A)the entity's forecasts
B)documents,records and internal control assessments
C)reports prepared by management
D)the entity's plans and office expenses