Audit A3 MCQ

Question 1

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

Answer 1

Obtains reasonable assurance about whether the financial statements are free of material misstatement.

Question 2

Which of the following is an important consideration when deciding the nature of tests to use in a financial statement audit?

Answer 2

The procedures to be applied on a particular engagement are a matter of the auditor’s professional judgement.

Question 3

An auditor uses the assessed level of control risk to:

Answer 3

Determine the acceptable level of detection risk for financial statement assertions.

Question 4

In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following?

Answer 4

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

Question 5

What is Detection risk?

Answer 5

Risk that the audit procedures implemented will not detect a misstatement that exists in a relevant assertions.

Question 6

The acceptable level of detection risk is inversely related to:

Answer 6

Assurance provided by substantive test.

For example, if the acceptable level of detection risk decreases, more assurance is required from substantive test.

Question 7

Which of the following types of risk increases when an auditor performs substantive analytical audit procedures for financial statement accounts at an interim date?

A. Sampling
B. Inherent
C. Control
D. Detection

Answer 7

D. Detection.

Detection risk increases when an auditor performs substantive analytical audit procedures for financial statement accounts at an interim date.

Question 8

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:

A. Extent of tests of control
B. Level of inherent risk.
C. Level of detection risk.
D. Extent of tests of details

Answer 8

D. Extent tests of details.

Question 9

Audit evidence concerning proper segregation of duties ordinarily is best obtained by:

Answer 9

Direct personal observation of the employees who apply control activities.

Question 10

During an audit of a nonissuer’s financial statements, an auditor should perform tests of controls to obtain sufficient appropriate audit evidence about the operating effectiveness of relevant controls if:

Answer 10

Substantive procedures alone cannot provide sufficient appropriate evidence.

Question 11

In assessing control risk, an auditor ordinarily selects from a variety of techniques, including:

Answer 11

Reperformance and observation

Question 12

An auditor of a nonissuer should design test of details to ensure that sufficient audit evidence supports:

Answer 12

The planned level of assurance at the relevant assertion level.

Question 13

Providing more supervision during an audit of a nonissuer in response to assessed risks of material misstatement at the financial statement level is an example of:

Answer 13

An overall response.

Question 14

The objective of tests of details of transactions performed as a testes of controls is to:

Answer 14

Evaluate whether internal controls operated effectively.

Question 15

When an auditor becomes aware of a possible noncompliance with laws and regulations by a client, the auditor should obtain an understanding of the nature of the noncompliance to:

Answer 15

Evaluate the effect on the financial statements.

Question 16

When auditing related party transactions, and auditor places primary emphasis on:

Answer 16

Evaluating the disclosure of the related party transactions.

Question 17

Info that may raise a question concerning possible noncompliance with laws and regulations include unusually large payments made to:

Answer 17

• Cash
• Bearer
• Purchase cashier checks
• Transfer funds to numbered accounts.

Question 18

When auditor discovers significant deficiencies in the operation of a client’s internal control, auditor most likely would…

Answer 18

Increase the assessment of control risk and increase the extent of substantive tests.

Question 19

Most reliable evidence?

A. Inquiries made of management
B. Analytical procedures
C. Confirmation of account information
D. Review of prior year audit procedures

Answer 19

C. Confirmation of account information

Confirmations are among the most reliable types of evidence, as they constitute external evidence sent directly to the auditor.

Question 20

An advantage of using statistical sampling over nonstatistical sampling methods in tests of controls is methods:

Answer 20

Provide an objective basis for quantitatively evaluating sample risk.

Question 21

Which of the following would be a consideration in planning an auditor’s sample for a test of controls?

A. The auditor’s allowable risk of assessing control risk too high
B. The auditor’s allowable risk of assessing control risk too low
C. Preliminary judgements about materiality levels.
D. The level of detection risk for the account.

Answer 21

B. The auditor’s allowable risk of assessing control risk too low has an inverse relationship with sample size when planning a sample for a test of controls. (Risk of overreliance)