Question 1

Testing of internal controls is typically conducted _______.

Accepted Answer

A) during an interim period 
B) at the balance sheet date 
C) after the balance sheet date 
D) upon issuance of the audit report

Question 2

Risk response at the financial statement level is affected by _______.

Accepted Answer

A) the auditor's understanding of the auditor's control environment and the assessed risk of material misstatement due to fraud 
B) the auditor's understanding of the entity's control environment and the assessed risk of material misstatement due to fraud 
C) the internal auditor's system of internal control 
D) the prior auditor's current assessment of audit risk

Question 3

A client has 100 customers constituting a total accounts receivable balance of $2 million.Twenty of the client's customers currently have balances over $50,000, with the remainder having balances less than this amount.If auditors decide to send confirmations to the twenty customers with balances of at least $50,000, what percentage of the total accounts receivable will the auditor ultimately audit?

Accepted Answer

The answer of A client has 100 customers constituting a...

Question 4

Examples of causes of misstatements include which of the following?

Accepted Answer

A) Intentional or unintentional omission of an amount or disclosure 
B) Incorrect accounting estimate caused by a misinterpretation of facts or by management bias 
C) Inappropriate selection of accounting policies 
D) All of these answer choices are correct.

Question 5

The use of a substantive analytical procedure may be more appropriate and provide more persuasive audit evidence depending on _______.

Accepted Answer

A) the nature of the assertion 
B) whether management agrees with its use 
C) the nature of the control 
D) whether the internal auditors are able to confirm the evidence

Question 6

If the client has well-designed, implemented, and documented controls over the preparation of accounting estimates, then an appropriate risk response would be _______.

Accepted Answer

A) to focus this audit time on another area, and conclude there is no material risk in this area 
B) to test the operating effectiveness of the controls 
C) to test the operating effectiveness of the assertions 
D) to obtain written representation from management to this effect, which negates the need for any testing

Question 7

If the auditor determines that internal controls are not functioning as designed, and a compensating control does not exist, the auditor will assess control risk and the risk of material misstatement (RMM) as_______.

Accepted Answer

A) high and set detection risk as low 
B) low and set detection risk as low 
C) high and set detection risk as high 
D) low and set detection risk as high

Question 8

If the assessed risk of material misstatement for an assertion is high, _______.

Accepted Answer

A) the auditors should avoid auditing the assertion in question 
B) auditors need to gather less persuasive audit evidence 
C) auditors need to gather more persuasive audit evidence 
D) the auditors should consider withdrawing from the engagement

Question 9

When analytical procedures are used to obtain audit evidence during the risk response phase, _______.

Accepted Answer

A) they are referred to as "substantive analytical procedures." 
B) they are referred to as tests of internal control 
C) the audit report is ready to be issued 
D) management should be allowed to select the procedures and tests

Question 10

Management bias is defined as _______.

Accepted Answer

A) a lack of neutrality by management in the preparation and fair presentation of information 
B) evidence of neutrality by management in the preparation and fair presentation of information 
C) management hiring selectively for certain key positions 
D) management 'opinion' shopping' among auditors for their desired opinion

Question 11

Management may feel pressure to maintain debt covenants _______.

Accepted Answer

A) if a client is relying heavily on debt financing and struggling to make debt payments 
B) if a client is relying heavily on equity financing and struggling to make equity payments 
C) both the liquidity and solvency positions have improved 
D) the accounts receivable turnover ratio has increased

Question 12

An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000.The auditor selected a sample of every twentieth item from the population of 1,000 items that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200.Under these circumstances, what would the auditor most likely would conclude?

Accepted Answer

The answer of An auditor established a $60,000 tolerable misstatement...

Question 13

A misstatement could occur _______.

Accepted Answer

A) with an account balance 
B) with a transaction 
C) with a classification 
D) All of these answer choices are correct.

Question 14

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained and AS 2301 The Auditor's Responses to the Risks of Material Misstatement state that _______.

Accepted Answer

A) auditors are required to perform substantive procedures for all relevant assertions that have been identified during the report issuance phase 
B) auditors are required to perform substantive procedures for all relevant assertions that have been identified during the risk assessment phase 
C) the auditors must always confer with the prior auditor before issuance of any audit report 
D) the accounting qualities of faithful representation and comparability are immaterial to the audit

Question 15

When conducting a substantive analytical procedure, _______.

Accepted Answer

A) auditors develop an expectation, or estimate, using data in the auditor's records or data from reliable outside sources, and then compare the expectation with the client's recorded amount 
B) auditors develop an expectation, or estimate, using data in the client's records or data from reliable outside sources, and then compare the expectation with the client's recorded amount. 
C) auditors develop an expectation, or estimate, using data in the client's records or data from reliable internal sources, and then compare the expectation with the client's recorded amount. 
D) the procedure should be approved by management beforehand

Question 16

The auditor is likely to use audit sampling in which of the following cases?

Accepted Answer

A) Evidence to support the audit test is not available in electronic form. 
B) The audit population is relatively large. 
C) Relevant data is not reliable. 
D) Relevant data is in different formats.

Question 17

In which of the following misstatements is there no doubt because there is no element of judgment involved?

Accepted Answer

A) Factual misstatements 
B) Projected misstatements 
C) Accumulated misstatements 
D) Auditing misstatements

Question 18

Financial statements include _______.

Accepted Answer

A) a variety of items that cannot be measured precisely and must be estimated by client management 
B) a variety of items that can be measured precisely and must be estimated by client management 
C) a variety of items that cannot be measured precisely and must be estimated by the internal auditors 
D) a variety of items that can be measured precisely and should not be estimated by client management

Question 19

After auditors have completed testing controls and drawn a conclusion about control risk, _______.

Accepted Answer

A) they make decisions about the nature and timing of substantive testing 
B) they are ready to issue the audit opinion 
C) they make decisions about the nature, timing, and extent of substantive testing 
D) they should withdraw if control risk is assessed as high

Question 20

A _______ shows the balances of prepaid insurance for each insurance provider.

Accepted Answer

The answer of A _______ shows the balances of prepaid...

Exam 9: Risk Responseperforming Substantive Procedures