Question 1

Which of the following circumstances would most likely cause an audit team to perform extended procedures?

Accepted Answer

A)   Supporting documents are produced when requested.
B)   The client made several large adjustments at or near year-end.
C)   The company has recently hired a new chief financial officer after the previous one retired.
D)   The company maintains several different petty cash funds.

Question 2

In the audit risk model,if an audit team wanted to keep audit risk at a low level but there was a great inherent risk of material misstatement and the internal control was ineffective,then procedures would need to be designed so that

Accepted Answer

A)   Detection risk was at a low level.
B)   Detection risk was at a high level.
C)   Control risk was at a low level.
D)   Inherent risk was at a high level.

Question 3

An auditor who encounters significant risks at the client should do all of the following except

Accepted Answer

A)   Inform the SEC.
B)   Perform extended procedures.
C)   Include more experienced auditors on the engagement.
D)   Perform tests closer to year-end.

Question 4

What are the independent auditor's responsibilities to detect and report errors and frauds?

Accepted Answer

Independent auditors have the responsibi...

Question 5

For each of the descriptions in Column A,match the correct word or words from ColumnB.

Accepted Answer

The answer of For each of the descriptions in Column...

Question 6

When an auditor becomes aware of possible noncompliance by a client,the auditor should obtain an understanding of the nature of the act to

Accepted Answer

A)   Evaluate the effect on the financial statements.
B)   Determine the reliability of management's representations.
C)   Consider whether other similar acts may have occurred.
D)   Recommend remedial actions to the audit committee.

Question 7

The risk that the auditors' own procedures will lead to the decision that material misstatements do not exist in the financial statements when in fact such misstatements do exist is

Accepted Answer

A)   Audit risk.
B)   Inherent risk.
C)   Control risk.
D)   Detection risk.

Question 8

Can an auditor place complete reliance on internal control to the exclusion of other audit procedures? Explain your answer using the audit risk model.

Accepted Answer

An auditor cannot place comple...

Question 9

What assurance does the auditor provide that errors,frauds,and direct effect noncompliance that are material to the financial statements will be detected?

Accepted Answer

A)   Errors: limited; frauds: negative; direct effect noncompliance: limited.
B)   Errors: limited; frauds: limited; direct effect noncompliance: reasonable.
C)   Errors: reasonable; frauds: limited; direct effect noncompliance: limited.
D)   Errors: reasonable; frauds: reasonable; direct effect noncompliance: reasonable.

Question 10

It is acceptable under generally accepted auditing standards for an audit team to

Accepted Answer

A)   Assess risk of material misstatement at high and achieve an acceptably low audit risk by performing extensive detection work.
B)   Assess control risk at zero and perform a minimum of detection work.
C)   Assess inherent risk at zero and perform a minimum of detection work.
D)   Decide that audit risk can be 40 percent.

Question 11

Which of the following relationships between types of analytical procedures and sources of information are most logical?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option D

Question 12

Which of the following statements best describes auditors' responsibility to detect errors and frauds?

Accepted Answer

A)   Auditors should design an audit to provide reasonable assurance of detecting errors and frauds that are material to the financial statements.
B)   Auditors are responsible to detect material errors but have no responsibility to detect material frauds that are concealed through employee collusion or management override of the internal control structure.
C)   Auditors have no responsibility to detect errors and frauds unless analytical procedures or tests of transactions identify conditions causing a reasonably prudent auditor to suspect that the financial statements were materially misstated.
D)   Auditors have no responsibility to detect errors and frauds because auditors are not insurers and an audit does not constitute a guarantee.

Question 13

Control risk should not be assessed so low that auditors place complete reliance on controls and do not perform any other audit work.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following risks is entirely a quality criterion based on professional judgment?

Accepted Answer

A)   Audit risk.
B)   Inherent risk.
C)   Control risk.
D)   Detection risk.

Question 15

Because auditors have little control over inherent risk and control risk,the two risks are often combined and referred to as the risk of _____________________________.

Accepted Answer

material m...

Question 16

The acceptable level of detection risk is inversely related to the

Accepted Answer

A)   Assurance provided by substantive tests.
B)   Risk of misapplying audit procedures.
C)   Preliminary judgment about materiality levels.
D)   Risk of failing to discover material misstatements.

Question 17

Management fraud generally refers to

Accepted Answer

A)   Unintentional mistakes.
B)   Noncompliance.
C)   Intentional distortions of financial statements.
D)   Violations of GAAS.

Question 18

When fraud risk is significant,and management cooperation is unsatisfactory,the auditors will most likely

Accepted Answer

A)   Perform extended audit procedures.
B)   Consult with fraud examiners.
C)   Report directly to the Securities and Exchange Commission within one day.
D)   Withdraw from the engagement.

Question 19

Auditing standards do not require auditors of financial statements to

Accepted Answer

A)   Understand the nature of errors and frauds.
B)   Assess the risk of occurrence of errors and frauds.
C)   Design audits to provide reasonable assurance of detecting errors and frauds.
D)   Report all errors and frauds found to police authorities.

Question 20

Which of the following statements concerning noncompliance by clients is correct?

Accepted Answer

A)   An auditor's responsibility to detect noncompliance that has a direct and material effect on the financial statements is the same as that for errors and frauds.
B)   An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect noncompliance that has an indirect but material effect on the financial statements.
C)   An auditor considers noncompliance from the perspective of the reliability of management's representations rather than their relation to audit objectives derived from financial statement assertions.
D)   An auditor has no responsibility for noncompliance that has an indirect effect on the financial statements.

Exam 4: Management Fraud and Audit Risk

Which of the following risks is entirely a quality criterion based on professional judgment?

Correct AnswerverifiedShow Answer

An auditor who encounters significant risks at the client should do all of the following except

Correct AnswerverifiedShow Answer

When fraud risk is significant,and management cooperation is unsatisfactory,the auditors will most likely

Correct AnswerverifiedShow Answer

Which of the following statements concerning noncompliance by clients is correct?

Correct AnswerverifiedShow Answer

When an auditor becomes aware of possible noncompliance by a client,the auditor should obtain an understanding of the nature of the act to

Correct AnswerverifiedShow Answer

Management fraud generally refers to

Correct AnswerverifiedShow Answer

Which of the following circumstances would most likely cause an audit team to perform extended procedures?

Correct AnswerverifiedShow Answer

The risk that the auditors' own procedures will lead to the decision that material misstatements do not exist in the financial statements when in fact such misstatements do exist is

Correct AnswerverifiedShow Answer

Which of the following statements best describes auditors' responsibility to detect errors and frauds?

Correct AnswerverifiedShow Answer

Because auditors have little control over inherent risk and control risk,the two risks are often combined and referred to as the risk of _____________________________.

Correct Answerverifiedmaterial m...View AnswerShow Answer

Can an auditor place complete reliance on internal control to the exclusion of other audit procedures? Explain your answer using the audit risk model.

Correct AnswerverifiedAn auditor cannot place comple...View AnswerShow Answer

The acceptable level of detection risk is inversely related to the

Correct AnswerverifiedShow Answer

It is acceptable under generally accepted auditing standards for an audit team to

Correct AnswerverifiedShow Answer

What assurance does the auditor provide that errors,frauds,and direct effect noncompliance that are material to the financial statements will be detected?

Correct AnswerverifiedShow Answer

What are the independent auditor's responsibilities to detect and report errors and frauds?

Correct AnswerverifiedIndependent auditors have the responsibi...View AnswerShow Answer

In the audit risk model,if an audit team wanted to keep audit risk at a low level but there was a great inherent risk of material misstatement and the internal control was ineffective,then procedures would need to be designed so that

Correct AnswerverifiedShow Answer

For each of the descriptions in Column A,match the correct word or words from ColumnB.

Correct AnswerverifiedShow Answer

Auditing standards do not require auditors of financial statements to

Correct AnswerverifiedShow Answer

Control risk should not be assessed so low that auditors place complete reliance on controls and do not perform any other audit work.

Correct AnswerverifiedShow Answer

Which of the following relationships between types of analytical procedures and sources of information are most logical?

Correct AnswerverifiedShow Answer

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material m...
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An auditor cannot place comple...
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Independent auditors have the responsibi...
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