A2 - Engagement Acceptance - Audit Risk

Question 1

Which risks may be assessed in nonquantitative terms?

Answer 1

Risk of Material Misstatement (Control Risk & Inherent Risk), and Detection risk.

Question 2

The existence of audit risk is recognized by the statement in the auditor’s standard report that the:

Answer 2

Auditor obtains reasonable assurance about whether the financial statements are free from material misstatement.

Question 3

When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor most likely would increase the:

Answer 3

Extent of tests of details.

Question 4

An auditor assesses control risk because it:

Answer 4

Affects the level of detection risk that the auditor may accept.

Question 5

Control risk should be assessed in terms of:

Answer 5

Financial statement assertions.

Question 6

The acceptable level of detection risk is inversely related to the:

Answer 6

Assurance provided by substantive tests. For example, if the acceptable level of detection risk decreases, more assurance is required from substantive tests.

Question 7

Regardless of the assessed level of control risk, an auditor would perform some:

Answer 7

Substantive tests to restrict detection risk for significant transaction classes.

Question 8

In a financial statement audit, inherent risk is evaluated to help an auditor assess what?

Answer 8

The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls.

Question 9

What is the definition of control risk?

Answer 9

The risk that a material misstatement will not be prevented or detected on a timely basis by the client’s internal controls.

Question 10

What type of risk increases when an auditor performs substantive analytical procedures for financial statement accounts at an interim date?

Answer 10

Detection Risk