Audit Risk

Question 1

Which course of action is the most appropriate if an auditor concludes that there is a high risk of material misstatement?

Answer 1

Select more effective substantive tests

Question 2

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

Answer 2

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

Question 3

What would NOT be considered an analytical procedure?

Answer 3

Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics

Question 4

Which comparison would be most useful to an auditor in evaluating the results of an entity’s operations?

Answer 4

Current year revenue to budgeted current year revenue

Question 5

Analytical procedures used in planning an audit engagement

Answer 5

Usually use financial and nonfinancial data aggregated at a high level

Question 6

Which activity is an analytical procedure an auditor would perform in the final overall review stage of an audit to ensure that the financial statements are free from material misstatement?

Answer 6

Comparing the current year’s financial statements with those of the prior year

Question 7

Which of the following analytical procedures most likely would be used during the planning stage of an audit?

Answer 7

Comparing current-year to prior-year sales volumes

Question 8

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

Answer 8

Interest expense

Question 9

An auditor’s decision either to apply analytical procedures as substantive tests or to perform tests of transactions and account balances usually is determined by the

Answer 9

Relative effectiveness and efficiency of the tests.

Question 10

Before accepting an engagement to audit a new client, a CPA is required to obtain

Answer 10

The prospective client’s consent to make inquiries of the predecessor, if any

Question 11

An auditor who uses the work of a specialist may refer to the specialist in the auditor’s report if the

Answer 11

Auditor modifies the report because of the difference between the client’s and the specialist’s valuations of an asset

Question 12

When using the work of a specialist, an auditor may refer to and identify the specialist in the auditor’s report if the

Answer 12

Auditor expresses a qualified opinion as a result of the specialist’s findings

Question 13

Which of the following statements is correct about an auditor’s required communication with an entity’s audit committee (or those charged with governance)?

Answer 13

The auditor is required to inform the entity’s audit committee (or those charged with governance) about significant errors discovered by the auditor and subsequently corrected by management

Question 14

Which of the following statements best describes why an auditor would use only substantive procedures to evaluate specific relevant assertions and risks?

Answer 14

Testing the operating effectiveness of the relevant controls would NOT be efficient.

Question 15

in an auditor’s decision to assess control risk at below the maximum

Answer 15

Perform tests of details of transactions to detect material misstatements in the financial statements

Question 16

An auditor may decide to assess control risk at the maximum level for certain assertions because the auditor believes

Answer 16

Evaluating the effectiveness of policies and procedures is inefficient.

Question 17

Which is a step in an auditor’s decision to assess control risk at below the maximum?

Answer 17

Identify specific internal control policies and procedures that are likely to detect or prevent material misstatements

Question 18

As part of understanding the internal control structure, an auditor is not required to

Answer 18

Obtain knowledge about the operating effectiveness of the internal control structure

Question 19

In obtaining an understanding of an entity’s internal control structure, an auditor is required to obtain knowledge about the

Answer 19

Design of policies and procedures

Question 20

After obtaining an understanding of the internal control structure and assessing control risk, an auditor decided to perform tests of controls. The auditor most likely decided that

Answer 20

It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests.