Ch 4 HW

Question 0

2. The nature of extended procedures for fraud detection is limited to those listed in the Professional Standards and Practices for Certified Fraud Examiners

T or F

Answer 0

False

Question 1

1. Frauds are unintentional misstatements or omissions of accounts or disclosures in financial statements.

T or F

Answer 1

False

Question 2

3. Fraud consists of knowingly making material misrepresentation of fact, with the intent of inducing someone to believe the falsehood and suffer a loss.

T or F

Answer 2

True

Question 3

4. Audit care and attention should be greater where business and inherent risks are judged to be lower

T or F

Answer 3

False

Question 4

6. Detection risk occurs when internal control activities fail to detect material misstatements

T or F

Answer 4

False

Question 5

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

True
False

Answer 5

True

Question 6

7. The auditing profession official standard for an acceptable level of overall audit risk is 0.05 at the current level

T or F

Answer 6

False

Question 7

8. Audit risk (AR) is a quality criterion based on professional judgement

T or F

Answer 7

True

Question 8

9. The audit risk model assumes that elements of audit risk are independent, and therefore multiplicative

T or F

Answer 8

True

Question 9

10. Generally, fraudulent financial statements show financial performance and ratios that are better than current industry experience

T or F

Answer 9

True

Question 10

11. The demographics of white collar criminals are similar to typical armed bank robbers.

T or F

Answer 10

False

Question 11

12. Knowledge and understanding of a client’s business is absolutely essential in completing an audit.

T or F

Answer 11

True

Question 12

13. Auditing standards require that analytical procedures be applied in planning stages of each audit.

T or F

Answer 12

True

Question 13

14. Auditors look for relationships that do not make sense as indicators of problems in the accounts and use such indicators to plan further audit work.

T or F

Answer 13

True

Question 14

15. Analytical procedures are considered to be “soft” evidence and therefore considered ineffective.

T or F

Answer 14

False

Question 15

16. Audits are designed to always detect material and immaterial fraud in financial statements

T or F

Answer 15

False

Question 16

17.

Answer 16

17.

Question 18

18. Analytical procedures are used in planning stages
    A. To test internal control activities.
    B. To provide substantive evidence about the account balances in the financial statements.
    C. To assess the reasonableness of financial statement amounts and helps direct attention to possible problem areas.
    D. To set materiality limits.

Answer 18

C. To assess the reasonableness of financial statement amounts and helps direct attention to possible problem areas.

Question 18

20. In the audit risk model, if an audit team wanted to keep audit risk at a low level, but there was high inherent risk and high control risk, then audit procedures would need to be designed so that
    A. Detection risk was set at a low level.
    B. Detection risk was set at a high level.
    C. Inherent risk was set at a high level.
    D. Control risk was set at a low level.

Answer 18

A. Detection risk was set at a low level.

Question 19

19. The risk that material misstatements have occurred in transactions entering the accounting system is
A. Control risk.
B. Inherent risk.
C. Detection risk.
D. Audit risk.

Answer 19

B. Inherent risk.

Question 20

21. Inherent risk is not a characteristic that is determined by
    A. Understanding of client’s business.
    B. Competence of the client’s accounting department staff.
    C. Major types of transactions and disclosures.
    D. Substantive procedures completed.

Answer 20

D. Substantive procedures completed.

Question 21

22. Which of the following risks is entirely controlled by the auditor?
A. Business risk
B. Detection risk
C. Inherent risk
D. Control risk

Answer 21

B. Detection risk

Question 22

23. In general, a fraudulent companies will prepare financial statements that are materially misleading in which of the following manners
    A. Overstating revenues and assets
    B. Showing financial performance that is worse than industry averages.
    C. Overstating expenses and liabilities.
    D. Understating revenues and assets.

Answer 22

A. Overstating revenues and assets

Question 23

24. In the planning stage, analytical procedures are not used to
    A. Review the overall quality of the audit process and the evidence gathered.
    B. Identify relevant financial statement assertions.
    C. Point out accounts that may contain errors and fraud.
    D. Identify unusual conditions that deserve more audit effort.

Answer 23

A. Review the overall quality of the audit process and the evidence gathered.

Question 24

25. The analytical procedures completed during the planning stages typically would not include a comparison of current year account balances with
    A. Other account balances that are being used as substantive analytical procedures.
    B. Evaluation of relationships to other current year balances.
    C. Anticipated results found in budgets.
    D. Balances for one or more comparable periods.

Answer 24

A. Other account balances that are being used as substantive analytical procedures.

Question 25

26 A) 1.

Will be dependent in part on the client’s complexity of economic transaction activity.

Answer 25

Inherent risk

Question 26

26 B) 2.

The overall probability that audit team will give inappropriate opinion on the financial statements.

Answer 26

Audit risk

Question 27

26 C) 3.

Used at the planning, substantive testing, and final stages of the audit.

Answer 27

Analytical procedures

Question 28

26 D) 4.

Probability that the client’s internal controls system will fail to prevent or detect a material misstatement.

Answer 28

Control Risk