Unit 3

Question 1

The auditor is not responsible for disclosure of fraudulent activity outside of ______ and ________

Answer 1

Management/Governance

Question 2

Bearer bonds can increase the ______ from misappropriation of assets

Answer 2

RMM

Question 3

Which of these exist independently of an F/S audit?

IR, CR, DR

Answer 3

IR and CR, DR cannot

Question 4

Assessing (Audit Risk/Inherent Risk/Control Risk) is to contribute to an auditor’s evaluation that a Material Misstatement can exist in the F/S

Answer 4

Control Risk

Question 5

This type of risk is that a Material Misstatement may not be detected by a client’s Internal Control in a timely basis

Answer 5

CR

Question 6

This type of risk is determined by the auditor’s evaluation of Internal Control

Answer 6

CR

Question 7

This type of risk is the susceptibility to Material Misstatement if no Internal Control exists.

Answer 7

IR

Question 8

This type of risk is associated with the auditor not being able to detect a material misstatement

Answer 8

DR

Question 9

This type of risk is determined by the assessed Control Risk

Answer 9

DR

Question 10

Substantive procedures will (never/sometimes/always) be necessary for all relevant assertions related to each material class of transactions

Answer 10

Always

Question 11

Derivative transactions are a (CR/IR/DR) factor.

Answer 11

Inherent Risk

Question 12

Analytical procedures (do/don’t) provide evidence of effectiveness of IC

Answer 12

Do NOT

Question 13

When are analytical procedures performed?

Answer 13

During the review and planning stages

Question 14

What three tests are required in audits of F/S?

Answer 14

Operating effectiveness
Analytical Procedures
Risk Assessment

Question 15

What the two ways are required to get enough evidence to support CR?

Answer 15

Inquiry and Observation

Question 16

Tests of controls are only necessary if…

Answer 16

Substantive procedures alone are insufficient.

Question 17

Auditor’s risk assessment supports ____ but does not support ______

Answer 17

NET / Relevance

Question 18

“Qualifed” vs “Modified”

Answer 18

Qualified = GAAP issue (F/S)
Modified = GAAS issue (scope limitation/internal control)

Question 19

Tests of details are used to….

Answer 19

Detect MM in the F/S

Question 20

What determines whether Analytical or Substantive procedures are used?

Answer 20

Precision/Reliability of the accounts

Question 21

If accounts are more reliable, (Analytical/Substantive) procedures are more likely to be used.

Answer 21

Analytical

Question 22

Analytical procedures at the review stage help the auditor evaluate the overall F/S _________

Answer 22

Presentation

Question 23

Tolerable (misstatement/deviation) is used in the sample size calculation for variable sampling.

Answer 23

Misstatement

Question 24

Tolerable (misstatement/deviation) is used in the sample size calculation for attribute sampling.

Answer 24

Deviation

Question 25

Allowable risk for assessing control risk too ____ is considered in planning a sample.

Answer 25

Low

Question 26

This type of risk is the uncertainty in applying audit procedures to specific tasks.

Answer 26

Audit Risk

Question 27

This type of risk includes all risks not due to sampling.

Answer 27

Nonsampling Risk

Question 28

This type of sampling is often a “Yes/No” question

Answer 28

Attribute

Question 29

This type of sampling is often a numerical one, such as “is a given account balance reasonable?”

Answer 29

Variable

Question 30

When is stratified sampling used?

Answer 30

When there is a lot of variation in a population.

Question 31

Stratified MPU sampling produces (larger/smaller) sample sizes and (more/less) precision.

Answer 31

Smaller/More

Question 32

Decreasing acceptable risk (does/doesn’t) affect reliability.

Answer 32

Does NOT