Chapter 9

Question 1

materiality

Answer 1

it is material if a reasonable user will change his decision based on it

Question 2

performance materiality

Answer 2

materiality for segments of the audit

Question 3

preliminary judgment about materiality

Answer 3

when auditors determine the total material amount in the financial statements

Question 4

revised judgment about materiality

Answer 4

when they there is a change in the auditors judgment that they didn’t know about

Question 5

allocation of the preliminary judgment about materiality

Answer 5

determining process materiality

Question 6

tolerable misstatement

Answer 6

a misstatement that doesn’t meet the materiality threshold

Question 7

known misstatements

Answer 7

those where the auditor can determine the amount of the misstatement in the account

Question 8

likely misstatements

Answer 8

diff between mgt and auditor judgement

projections of misstatements based on a sample

Question 9

sampling error

Answer 9

the risk that the sample was a bad sample

Question 10

planned detection risk

Answer 10

the risk that audit evidence for an audit objective will fail to detect misstatements exceeding performance materiality

Question 11

inherent risk

Answer 11

measures the auditor’s assessment of the susceptibility of an assertion to material misstatement, before considering the effectiveness of related internal controls

Question 12

control risk

Answer 12

measures the auditor’s assessment of the risk that a material misstatement could occur in an assertion and not be prevented or detected on a timely basis by the client’s internal controls

Question 13

risk of material misstatements

Answer 13

combination of inherent risk and control risk

Question 14

acceptable audit risk

Answer 14

measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued

Question 15

audit assurance

Answer 15

acceptable audit risk

Question 16

engagement risk

Answer 16

the risk that the auditor or audit firm will suffer harm after the audit is finished

Question 17

factors that lower acceptible audit risk

Answer 17

client size
distribution of ownership
Nature and amount of liabilities

Question 18

factors that indicate financial failure

Answer 18

liquidity position
profits (losses) in previous years
method of financing growth
nature of the client's operations
competence of management

Question 19

assessing acceptable audit risk

Answer 19

external user’s reliance on financial statements
likelihood of financial difficulties
management integrity

Question 20

inherent risk

Answer 20

predicting what the risks are before any company data is reviewed

Question 21

auditors can change the audit to respond to risk by

Answer 21

getting more experienced staff

reviewing the audit more carefully