Question 1

When analytical procedures are used to obtain audit evidence during the risk response phase, _______.

Accepted Answer

Analytical procedures used for obtaining audit evidence during the risk response phase are commonly referred to as "substantive analytical procedures." These procedures involve the analysis of financial information to identify unusual fluctuations or trends that may indicate the presence of material misstatements in the financial statements. Substantive analytical procedures are often used in conjunction with other substantive audit procedures, such as tests of details, to provide sufficient audit evidence. Options B, C, and D are incorrect statements.

Question 2

Management may feel pressure to maintain debt covenants _______.

Accepted Answer

Debt covenants are agreements between a borrower and a lender that specify certain conditions that must be met by the borrower in order to continue receiving loans. These conditions may include maintaining certain levels of liquidity, solvency, and debt service coverage ratios. If a client is relying heavily on debt financing and struggling to make debt payments, management may feel pressure to maintain these covenants in order to avoid defaulting on the loan and facing more severe consequences, such as foreclosure or bankruptcy.

Question 3

Which of the following is an audit procedure in response to assessed risks?

Accepted Answer

Making changes to the nature, timing, or extent of audit procedures to obtain more persuasive evidence is an audit procedure that directly addresses assessed risks. By adapting audit procedures to enhance the quality of evidence obtained, the audit team can address identified risks and improve the overall effectiveness of the audit process. Choices B, C, and D are all important elements of the audit process, but they are not directly related to modifying procedures in response to risk assessments.

Question 4

Which of the following factors is used by the audit team to assess the risk of fraud?

Accepted Answer

The audit team assesses the risk of fraud by considering factors like pressure and opportunities for management to commit forgery, as these are key elements that can lead to fraudulent activities.

Question 5

If the control environment is assessed to be weak, _______.

Accepted Answer

If the control environment is assessed to be weak, the auditors should address this by changing the audit plan to include more audit procedures and expanding the scope of the audit to include more of the client's locations. This is because a weak control environment increases the risk of material misstatements in the financial statements, and the auditors need to take additional steps to obtain sufficient and appropriate audit evidence to mitigate these risks. Options A, C, and D are not appropriate responses to a weak control environment on their own.

Question 6

In order to obtain more reliable evidence, _______.

Accepted Answer

Auditors should exercise professional skepticism and be prepared to modify planned audit procedures as needed to obtain more reliable evidence. This may include obtaining additional documentation or performing more substantive testing. Simply relying on internally generated evidence or requesting that management generate evidence may not be sufficient to ensure the reliability of the evidence obtained. Additionally, relying solely on the internal audit function to generate evidence may not be appropriate if there are concerns about their independence or competency.

Question 7

An effective control environment suggests that _______.

Accepted Answer

An effective control environment is characterized by the commitment of management and those charged with governance to ethical values and a strong system of internal control. This commitment is fundamental to setting the tone at the top and ensuring that the organization's internal controls are designed and implemented effectively.

Question 8

Risk response at the financial statement level is affected by _______.

Accepted Answer

Risk response at the financial statement level is influenced by the auditor's knowledge of the entity's control environment and the assessed risk of material misstatement resulting from fraud. This understanding allows the auditor to plan and perform procedures that will help in reducing the risk of material misstatement and ensure the financial statements are free from material misstatement. The other options (A, C, and D) are either unrelated or incorrect.

Question 9

After auditors have assessed control risk, _______.

Accepted Answer

After assessing control risk, auditors can better evaluate the risk of fraud as they have a clearer understanding of the effectiveness of the entity's internal controls.

Question 10

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained and AS 2301 The Auditor's Responses to the Risks of Material Misstatement state that auditors _______.

Accepted Answer

AU-C 330 and AS 2301 state that auditors are required to perform substantive procedures (such as tests of details or analytical procedures) for all relevant assertions that have been identified during the risk assessment phase. They are not required to perform substantive procedures for all relevant assertions that have been identified after issuance of the audit opinion, as it may not be necessary or efficient to do so. Testing of controls may also be necessary depending on the assessed risks, but it is not required for all relevant assertions identified during the risk assessment phase. The option D is not relevant to the question asked.

Question 11

The nature of an audit procedure refers to _______.

Accepted Answer

The nature of an audit procedure refers to its purpose (test of controls or substantive procedure) and its type.

Question 12

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained and AS 2301 The Auditor's Responses to the Risks of Material Misstatement state that _______.

Accepted Answer

AU-C 330 and AS 2301 both state that auditors are required to perform substantive procedures for all relevant assertions that have been identified during the risk assessment phase. This means that the audit procedures performed should be directly related to the identified risks of material misstatement in the financial statements. The audit evidence obtained should also be evaluated to determine if it provides sufficient and appropriate support for the auditor's conclusions. Options A, C, and D are incorrect based on the information provided.

Question 13

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained and AS 2301 The Auditor's Responses to the Risks of Material Misstatement provide which of the following examples of responding to risk at the financial statement level?

Accepted Answer

The AS 2301 states that the auditor should include more elements of unpredictability in the selection of audit procedures as a response to risk at the financial statement level. This means that the auditor should use a variety of audit procedures that are unexpected to the client and increase the likelihood of detecting material misstatements. Emphasizing that audit team members should not attempt to maintain professional skepticism (A), assigning less experienced staff to higher risk areas (B), and providing less supervision (C) are not appropriate responses to risk at the financial statement level.

Question 14

For clients with multiple locations, the auditors_______.

Accepted Answer

Auditors could vary which locations are tested each year and the type of audit procedures that are performed at the different locations to provide a comprehensive audit of the company as a whole. This also helps to prevent any potential fraud or misstatements that could occur at one specific location.

Question 15

If the control environment is assessed to be weak, _______.

Accepted Answer

When the control environment is assessed to be weak, auditors typically respond by increasing the extent of audit procedures and possibly expanding the scope of the audit to include more locations. This is to compensate for the higher risk of material misstatement due to the weak control environment.

Question 16

Auditors will have more confidence in internal controls and audit evidence generated internally _______.

Accepted Answer

Auditors will have more confidence in internal controls and audit evidence generated internally if the client maintains an effective control environment. A well-designed control environment helps ensure the reliability of financial reporting, compliance with laws and regulations, and effective and efficient operations. This, in turn, allows auditors to rely on the internal controls more and reduce their substantive testing procedures. The other options, such as a poor control environment, centralized controls, or evidence from only one department, would not instill as much confidence in the auditors.

Question 17

Auditors will assess the risk of fraud by considering _______.

Accepted Answer

Auditors will assess the risk of fraud by considering fraud risk factors that may be present, such as pressure and opportunities for management to commit fraud. This is in contrast to A (which suggests considering fraud risk factors that may not be present) and C (which suggests considering a lack of pressure and opportunities for fraud, which would not be considered risk factors). D is not a reliable source for determining the existence of fraud, as management may not disclose or may be unaware of fraudulent activity.

Question 18

The most important factor when responding to assessed risks is _______.

Accepted Answer

The nature of the audit procedure is crucial because it determines how the auditor will gather sufficient and appropriate evidence to address the assessed risks effectively.

Question 19

Examples of substantive procedures include _______.

Accepted Answer

All of these answer choices are correct. Substantive procedures include the physical observation of assets, inquiry of management, confirmation with third parties, examination of documentation, and analytical procedures.

Question 20

If significant fraud risk exists, the auditors should _______.

Accepted Answer

When significant fraud risk exists, auditors should respond by including elements of unpredictability in their audit plan. This helps to deter potential fraudsters and increases the likelihood of detecting any fraudulent activities that may have occurred. Adding unpredictable audit procedures, such as unexpected inventory counts or surprise observations, can help uncover fraud that may be missed with more routine procedures.

Quiz 9: Risk Responseperforming Substantive Procedures

When analytical procedures are used to obtain audit evidence during the risk response phase, _______.

Management may feel pressure to maintain debt covenants _______.

Which of the following is an audit procedure in response to assessed risks?

Which of the following factors is used by the audit team to assess the risk of fraud?

If the control environment is assessed to be weak, _______.

In order to obtain more reliable evidence, _______.

An effective control environment suggests that _______.

Risk response at the financial statement level is affected by _______.

After auditors have assessed control risk, _______.

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained and AS 2301 The Auditor's Responses to the Risks of Material Misstatement state that auditors _______.

The nature of an audit procedure refers to _______.

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained and AS 2301 The Auditor's Responses to the Risks of Material Misstatement state that _______.

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained and AS 2301 The Auditor's Responses to the Risks of Material Misstatement provide which of the following examples of responding to risk at the financial statement level?

For clients with multiple locations, the auditors_______.

If the control environment is assessed to be weak, _______.

Auditors will have more confidence in internal controls and audit evidence generated internally _______.

Auditors will assess the risk of fraud by considering _______.

The most important factor when responding to assessed risks is _______.

Examples of substantive procedures include _______.

If significant fraud risk exists, the auditors should _______.