EBK AUDITING & ASSURANCE SERVICES: A SY
11th Edition
ISBN: 9781260687668
Author: Jr
Publisher: MCGRAW-HILL LEARNING SOLN.(CC)
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Chapter 4, Problem 4.16MCQ
To determine
Concept Introduction:Audit risk is a risk that audit may provide an inappropriate opinion on the basis of his findings during the audit. There are some inherent risks and avoidable risk which result in an audit risk.
Audit risk has its three components; inherent risk, control risk, and detection risk.
To choose: The correct option.
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Why is the audit team more concerned with controlling the exposure to the risk of overreliancethan with the risk of underreliance?a. Only the risk of overreliance results in an incorrect audit decision.b. The risk of underreliance is not related to the audit team’s study and evaluation of internalcontrol.c. The risk of overreliance can ultimately result in the audit team’s failing to reduce auditrisk to acceptable levels.d. The risk of underreliance can be controlled by performing tests of controls during theinterim period.
As lower acceptable levels of both audit risk and materiality are established, theauditor should plan more work on individual accounts to(1) find smaller misstatements.(2) find larger misstatements.(3) increase the performance materiality in the accounts.(4) increase inherent risk in the accounts
Which of the following regarding the level of materiality is correct? Select one: a. An increase in materiality will decrease the amount of substantive testing b. In order to decrease detection risk, the auditor would increase materiality. c. A higher risk of material misstatement will require an increase in materiality d. A decrease in materiality will result in a decrease in the cost of an audit
Chapter 4 Solutions
EBK AUDITING & ASSURANCE SERVICES: A SY
Ch. 4 - Prob. 4.1RQCh. 4 - Prob. 4.2RQCh. 4 - Prob. 4.3RQCh. 4 - Prob. 4.4RQCh. 4 - Prob. 4.5RQCh. 4 - Prob. 4.6RQCh. 4 - Prob. 4.7RQCh. 4 - Prob. 4.8RQCh. 4 - Prob. 4.9RQCh. 4 - Prob. 4.10RQ
Ch. 4 - Prob. 4.11RQCh. 4 - Prob. 4.12RQCh. 4 - Prob. 4.13MCQCh. 4 - Prob. 4.14MCQCh. 4 - Prob. 4.15MCQCh. 4 - Prob. 4.16MCQCh. 4 - Prob. 4.17MCQCh. 4 - Prob. 4.18MCQCh. 4 - Prob. 4.19MCQCh. 4 - Prob. 4.20MCQCh. 4 - Prob. 4.21MCQCh. 4 - Prob. 4.22MCQCh. 4 - Prob. 4.23PCh. 4 - Prob. 4.24PCh. 4 - Prob. 4.25PCh. 4 - Prob. 4.26PCh. 4 - Prob. 4.27PCh. 4 - Prob. 4.28PCh. 4 - Prob. 4.29PCh. 4 - Prob. 4.30PCh. 4 - Prob. 4.31PCh. 4 - Prob. 4.32P
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- The higher the risk of material misstatements the lower should audit risk be taken. True or falsearrow_forwardThe lower the materiality level, the higher the amount of required evidence from substantive procedures to compensate for increased risk. Further audit procedures include risk assessment procedures, test of controls and substantive tests. Group of answer choices False, True True, False True, True False, Falsearrow_forwardWhich of the following is appropriate about risk assessment? A. The assessed level of inherent and control risk can be sufficiently low, thus resulting to eliminating the need for substantive tests. B. Audit risk may be more effectively determined by assessing inherent and control risk separately. C. Detection risk is eliminated if an auditor were to examine 100 percent off the account balance or class of transactions. D. There is an iverse relationship between detection risk and the combined level of inherent and control riskarrow_forward
- Some account balances such as those for pensions and leases are the result of complex calculations. The susceptibility to material misstatements in these types of accounts is defined as a. Sampling risk b. Detection risk c. Inherent risk. d. audit riskarrow_forwardInquiries of clients and reperformance normally have a low cost to perform. True False When analytical procedures reveal no unusual fluctuations in an account balance, the auditor will probably perform fewer test of details of balance for that account. True False When analytical procedures reveal no unusual fluctuations in an account balance, the auditor will probably perform fewer test of controls for that account. True False Analytical procedures can be used to provide reliable evidence for all balance-related general audit objectives. True False One advantage of using statical techniques when performing analytical procedures is that they eliminate the need for auditor judgement. True False The type of audit evidence known as documentation involves the auditor’s examination of tangible assets with results of the examination being recorded, or “documented,” in the auditor’s work papers. True False If a company’s cash ratio is greater than 1.0, the company is…arrow_forwardWhy are auditors more concerned with the risk of incorrect acceptance than the risk of incorrect rejection?arrow_forward
- Tests of controls are most likely to be omitted when(1) an account balance reflects many transactions.(2) control risk is assessed at less than the maximum.(3) the understanding of the control structure indicates that evaluating the effectiveness of control policies and procedures is likely to be inefficient.(4) the auditor wishes to increase the acceptable level of detection risk.arrow_forwardWhen making a decision about the dollar amount in an account balance based on a sample, the audit team considers the risk of incorrect acceptance to be more serious than the risk of incorrect rejection becausea. The incorrect rejection decision impairs the efficiency of the audit.b. The audit team will do additional work and discover the misstatement of the incorrect decision.c. The incorrect acceptance decision impairs the effectiveness of the audit.d. Sufficient appropriate audit evidence will not have been obtained.arrow_forwardThe auditor attempts to correct for the risk of under-auditing (ineffectiveness) and over-auditing (inefficiency). Which of the following statistical Factors corrects for under-auditing? A) Basic Precision B) Reliability Factor C) Achieved Upper Deviation Ratearrow_forward
- Which of the following is consistent with an assessed level of control risk at below the maximum level after completing the auditors consideration of the client’s internal control over receivables? Increased materiality level in selecting receivables to be confirmed and use a positive confirmation letter. Increased materiality level in selecting receivables to be confirmed and use a negative confirmation letter. Decrease materiality level in selecting receivables to be confirmed and use a negative confirmation letter. d. Decrease materiality level in selecting receivables to be confirmed and use a positive confirmation letter.arrow_forwardtch the type of risk with the related definition.A. Detection riskB. Control riskC. Inherent riskD. Audit risk___ 1. The probability that an auditor will give an inappropriate opinion on financial statements.___ 2. The probability that audit procedures will fail to produce evidence of material misstatements.___ 3. The probability that the client's internal control policies and procedures will fail to detect material misstatements if they have entered the accounting system.___ 4. The probability that material misstatements have occurred in transactions entering the accounting system.arrow_forwardWhen an auditor decreases the planned assessed level of control risk because certain control procedures were determined to be more effective than anticipated, the auditor would most likely increase the: a. Extent of tests of details. b. Level of inherent risk. c. Extent of tests of controls. d. Level of detection risk.arrow_forward
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