Quiz 4 - Ch 4 (1)

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Jan 9, 2024

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Question #1 (AICPA.940523AUD-AU) When an auditor increases the assessed level of control risk because certain control procedures were determined to be ineffective, the auditor would most likely increase the A. Extent of tests of controls. B. Level of detection risk. C. Extent of tests of details. D. Level of inherent risk. Question #2 Which of the following courses of action is the most appropriate if an auditor concludes that there is a high risk of material misstatement? A. Use smaller, rather than larger, sample sizes. B. Perform substantive tests as of an interim date. C. Select more effective substantive tests. D. Increase of tests of controls. Question #3 (AICPA.941109AUD-AU) The existence of audit risk is recognized by the statement in the auditor's standard report that the A. Auditor is responsible for expressing an opinion on the financial statements, which are the responsibility of management. B. Financial statements are presented fairly, in all material respects, in accordance with GAAP. C. Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. D. Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement. Question #4 (AICPA.921110AUD-AU) As the acceptable level of detection risk increases, an auditor may change the A. Assessed level of control risk from below the maximum to the maximum level. B. Assurance provided by tests of controls by using a larger sample size than planned. C. Timing of substantive tests from year end to an interim date. D. Nature of substantive tests from a less effective to a more effective procedure. Question #5 (AICPA.911107AUD-AU) The risk that an auditor will conclude, based on substantive tests, that a material error does not exist in an account balance when, in fact, such error does exist is referred to as A. Sampling risk. B. Detection risk. C. Nonsampling risk.

D. Inherent risk. Question #6 (AICPA.920557AUD-AU) Inherent risk and control risk differ from detection risk in that inherent risk and control risk are A. Elements of audit risk while detection risk is not. B. Changed at the auditor's discretion while detection risk is not. C. Considered at the individual account-balance level while detection risk is not. D. Functions of the client and its environment while detection risk is not. Question #7 (AICPA.090783.AUD-AU) In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following? A. The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee. B. The risk that the internal control system will not detect a material misstatement of a financial statement assertion. C. The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion. D. The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls. Question #8 (AICPA.111176AUD) Which of the following is a definition of control risk? A. The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls. B. The risk that the auditor will not detect a material misstatement. C. The risk that the auditor's assessment of internal controls will be at less than the maximum level. D. The susceptibility of material misstatement assuming there are no related internal control, policies, or procedures. Question #9 (AICPA.931107AUD-AU) On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would A. Increase inherent risk. B. Increase materiality levels.

C. Decrease substantive testing. D. Decrease detection risk. Question #10 (AICPA.950512AUD-AU) As the acceptable level of detection risk decreases, an auditor may A. Reduce substantive testing by relying on the assessments of inherent risk and control risk. B. Postpone the planned timing of substantive tests from interim dates to the year-end. C. Eliminate the assessed level of inherent risk from consideration as a planning factor. D. Lower the assessed level of control risk from the maximum level to below the maximum. Question #11 (AICPA.101093AUD) During the audit of a new client, the auditor determined that management had given illegal bribes to municipal officials during the year under audit and for several prior years. The auditor notified the client's board of directors, but the board decided to take no action because the amounts involved were immaterial to the financial statements. Under these circumstances, the auditor should A. Add an explanatory paragraph emphasizing that certain matters, while not affecting the unqualified opinion, require disclosure. B. Report the illegal bribes to the municipal official at least one level above those persons who received the bribes. C. Consider withdrawing from the audit engagement and disassociating from future relationships with the client. D. Issue an "except for" qualified opinion or an adverse opinion with a separate paragraph that explains the circumstances. Question #12 (AICPA.130711AUD) Inherent risk and control risk differ from detection risk in which of the following ways? A. Inherent risk and control risk are calculated by the client. B. Inherent risk and control risk exist independently of the audit. C. Inherent risk and control risk are controlled by the auditor. D. Inherent risk and control risk exist as a result of the auditor's judgment about materiality. Question #13 (AICPA.980520AUD-AU) An auditor who discovers that a client's employees have paid small bribes to public officials most likely would withdraw from the engagement if the A. Client receives financial assistance from a federal government agency. B. Evidential matter that is necessary to prove that the illegal acts were committed does not exist. C. Employees' actions affect the auditor's ability to rely on management's representations. D. Notes to the financial statements fail to disclose the employees' actions. Question #14 (AICPA.901138AUD-AU) Which of the following circumstances is most likely to cause an auditor to consider whether a material misstatement exists?

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A. Transactions selected for testing are not supported by proper documentation. B. The turnover of senior accounting personnel is exceptionally low. C. Management places little emphasis on meeting earnings projections. D. Operating and financing decisions are dominated by several persons. Question #15 (AICPA.010503AUD-AU) Which of the following factors would be most likely to heighten an auditor's concern about the risk of fraudulent financial reporting? A. Large amounts of liquid assets that are easily convertible into cash. B. Low growth and profitability as compared to other entities in the same industry. C. Financial management's participation in the initial selection of accounting principles. D. An overly complex organizational structure involving unusual lines of authority. Question #16 (AICPA.911110AUD-AU) Which of the following statements describes why a properly designed and executed audit may not detect a material fraud? A. Audit procedures that are effective for detecting an unintentional misstatement may be ineffective for an intentional misstatement that is concealed through collusion. B. An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning material irregularities (fraud). C. The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional errors in the financial statements. D. The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole. Question #17 (AICPA.920559AUD-AU) What assurance does the auditor provide that errors, irregularities (fraud), and direct effect illegal acts that are material to the financial statements will be detected? Errors Irregularities Direct effect illegal acts Limited Negative Limited Limited Limited Reasonable Reasonable Limited Limited Reasonable Reasonable Reasonable Question #18 (AICPA.130716AUD) What is the primary objective of the fraud brainstorming session? A. Determine audit risk and materiality. B. Identify whether analytical procedures should be applied to the revenue accounts. C. Assess the potential for material misstatement due to fraud. D. Determine whether the planned procedures in the audit program will satisfy the general audit objectives.

Question #19 (AICPA.950514AUD-AU) Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements? A. Turnover of senior accounting personnel is low. B. Insiders recently purchased additional shares of the entity's stock. C. Management places substantial emphasis on meeting earnings projections. D. The rate of change in the entity's industry is slow. Question #20 (AICPA.900555AUD-AU) Disclosure of irregularities to parties other than a client's senior management and its audit committee or board of directors ordinarily is not part of an auditor's responsibility. However, to which of the following outside parties may a duty to disclose irregularities exist? To the SEC when the client reports an auditor change To a successor auditor when the successor makes appropriate inquiries To a government funding agency from which the client receives financial assistance Yes Yes No Yes No Yes No Yes Yes Yes Yes Yes