Question 1

Inherent and control risks are risks controlled by the auditor.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following best describes the misstatements identified throughout the audit that will be considered at the end of the audit in determining whether the financial statements overall are materially correct?

Accepted Answer

A) Posting materiality. 
B) Performance materiality. 
C) Overall materiality. 
D) Tolerable error.

Question 3

A company's history of exactly meeting analyst estimates is a factor which could lead auditors to assess inherent risk at a higher level.

Accepted Answer

A) True 
 B)False

Question 4

A significant risk is the same as a material risk.

Accepted Answer

A) True 
 B)False

Question 5

If performance materiality for accounts payable is $1,000,the auditor would need to obtain more audit evidence for that account than if performance materiality were $100,000.

Accepted Answer

A) True 
 B)False

Question 6

In which of the following situations will auditors typically rely on internal controls over financial reporting?

Accepted Answer

A) If control risk is assessed at a high level. 
B) If the controls are determined to be designed and operating effectively. 
C) If the client asks the auditor to test controls. 
D) If the controls are sufficient to increase control risk to an acceptable level.

Question 7

If $15,000 is considered to be material to the income statement,but $25,000 is material to the balance sheet,the auditor should set overall materiality at which of the following dollar amounts?

Accepted Answer

A) $20,000 
B) $25,000 
C) $40,000 
D) $15,000

Question 8

Which of the following phrases or terms regarding materiality is used by the Supreme Court of the United States and is not found in FASB Concepts Statement No.2?

Accepted Answer

A) "amount of a misstatement or omission" 
B) "in light of surrounding circumstances" 
C) "probable that the judgement of a reasonable person" 
D) "significantly altered the total mix of information available"

Question 9

Only public companies have to be concerned with business risk.

Accepted Answer

A) True 
 B)False

Question 10

The quick ratio is useful for analyzing inventory accounts.

Accepted Answer

A) True 
 B)False

Question 11

All audit procedures must be completed before year end.

Accepted Answer

A) True 
 B)False

Question 12

What type of relationship exists between audit risk and detection risk?

Accepted Answer

A) Direct. 
B) Inverse. 
C) Indirect. 
D) No relationship.

Question 13

Risk Responses When considering risk responses,what steps should the auditor take?

Accepted Answer

The answer of Risk Responses When considering risk responses,what steps...

Question 14

What is the auditor trying to accomplish by varying the timing of audit procedures from the prior year?

Accepted Answer

A) Introduce unpredictability. 
B) Confuse the client. 
C) Gather information during different times of the year. 
D) Finish the audit sooner.

Question 15

Predecessor auditor Discuss the required communications between predecessor and successor auditors.

Accepted Answer

The answer of Predecessor auditor Discuss the required communications between...

Question 16

As detection risk increases,the amount of evidence an auditor needs to obtain decreases.

Accepted Answer

A) True 
 B)False

Question 17

One potential limitation to using industry data in planning analytical procedures is that the data from the client may not be directly comparable to the data of the industry.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following factors will result in control risk being assessed at a higher level?

Accepted Answer

A) Controls are well designed. 
B) There is a lack of supervision of accounting personnel. 
C) Accounting staff are well trained and educated. 
D) The control environment is operating effectively.

Question 19

A risk of material misstatement of 100% indicates that material misstatement is highly likely.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following would be the likely risk results from using a 1% level of detection risk?

Accepted Answer

A) High detection risk and low audit risk. 
B) High detection risk and high audit risk. 
C) Low detection risk and high audit risk. 
D) Low detection risk and low audit risk.

Exam 7: Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Inherent and control risks are risks controlled by the auditor.

Which of the following best describes the misstatements identified throughout the audit that will be considered at the end of the audit in determining whether the financial statements overall are materially correct?

A company's history of exactly meeting analyst estimates is a factor which could lead auditors to assess inherent risk at a higher level.

A significant risk is the same as a material risk.

If performance materiality for accounts payable is $1,000,the auditor would need to obtain more audit evidence for that account than if performance materiality were $100,000.

In which of the following situations will auditors typically rely on internal controls over financial reporting?

If $15,000 is considered to be material to the income statement,but $25,000 is material to the balance sheet,the auditor should set overall materiality at which of the following dollar amounts?

Which of the following phrases or terms regarding materiality is used by the Supreme Court of the United States and is not found in FASB Concepts Statement No.2?

Only public companies have to be concerned with business risk.

The quick ratio is useful for analyzing inventory accounts.

All audit procedures must be completed before year end.

What type of relationship exists between audit risk and detection risk?

Risk Responses When considering risk responses,what steps should the auditor take?

What is the auditor trying to accomplish by varying the timing of audit procedures from the prior year?

Predecessor auditor Discuss the required communications between predecessor and successor auditors.

As detection risk increases,the amount of evidence an auditor needs to obtain decreases.

One potential limitation to using industry data in planning analytical procedures is that the data from the client may not be directly comparable to the data of the industry.

Which of the following factors will result in control risk being assessed at a higher level?

A risk of material misstatement of 100% indicates that material misstatement is highly likely.

Which of the following would be the likely risk results from using a 1% level of detection risk?