Question 1

Analytical Techniques
What are various assumptions underlying analytical techniques?

Accepted Answer

The answer of Analytical Techniques
What are various assumptions underlying analytical...

Question 2

Under the audit risk approach which of the following is not a method used by the auditor to manage detection and audit risk?

Accepted Answer

The audit risk approach involves managing detection risk (the risk that the auditor will fail to detect a material misstatement) and inherent risk (the risk that the client's financial statements may contain material misstatements). Adjusting the timing of audit tests to maximize overall audit risk is not a method used by the auditor to manage detection and audit risk. The goal of the auditor is to minimize overall audit risk, which is a combination of detection risk and inherent risk. Therefore, option D is the correct answer.

Question 3

Analytical techniques in an audit
Why would an auditor use trend analysis on an audit? How and when would such an analysis be used by the auditor?

Accepted Answer

The answer of Analytical techniques in an audit
Why would an...

Question 4

Several general premises have been incorporated into the audit risk model.Which of the following general premises have not been incorporated into the model?

Accepted Answer

This premise has been incorporated into the audit risk model. Good internal controls reduce the acceptable level of audit risk, which means the auditor can rely more on the controls and reduce the amount of substantive testing needed.

Question 5

Which of the following factors is not a component of the audit risk model?

Accepted Answer

The audit risk model consists of three components: inherent risk, control risk, and detection risk. Statistical risk is not a component of the audit risk model.

Question 6

During the 1990s the SEC was critical of the accounting profession for not sufficiently examining qualitative factors in making materiality decision.A qualitative factor generally not criticized by the SEC was

Accepted Answer

The answer of During the 1990s the SEC was critical...

Question 7

Residual risk is defined as

Accepted Answer

Residual risk refers to the risk that remains in an account balance even after internal controls have been applied. It is not the same as the risk of errors or fraud occurring, which is the subject of A and B. Similarly, residual risk is not the same as the risk of audit procedures missing a material misstatement, which is the subject of D.

Question 8

In evaluating the quality of corporate governance,the auditor analyzes several key factors in determining to accept or retain a client.Which of the following factors are not one of those key factors?

Accepted Answer

The existence of measurement risk is not typically a key factor in evaluating the quality of corporate governance for the purposes of accepting or retaining a client. The other options listed are all important factors to consider in this evaluation process. The independence and competency of the audit committee helps ensure that proper oversight is in place for the audit process. Participation of key stakeholders, such as shareholders and employees, can provide valuable insight into the company's practices and culture. The quality of management's risk management process and internal controls is crucial in maintaining accuracy and reliability in financial reporting.

Question 9

Audit risk in the audit risk model concerns the risk that the auditor may issue an unqualified opinion on financial statements that are materially misstated.What is the manner in which the auditor assesses audit risk in using the audit risk model to determine the nature,extent and timing of audit evidence to collect in an audit.

Accepted Answer

In the audit risk model, the auditor assesses audit risk to maintain a low level of audit risk given engagement risk. Engagement risk is the risk that the auditor may suffer harm to its reputation as a result of an association with a particular client. It is used to determine the acceptable level of audit risk that the auditor is willing to take on a specific engagement. The auditor then uses the acceptable level of audit risk to determine the nature, extent, and timing of audit evidence needed to collect during the audit.

Question 10

Which of the following industries is usually considered high risk by audit firms?

Accepted Answer

High technology companies such as Internet firms are usually considered high risk by audit firms due to their rapid rate of change, complex business models, and reliance on intellectual property. This industry is also prone to high levels of competition and regulatory scrutiny, making it a challenging environment for audit firms.

Question 11

Engagement risk has been defined as the risk of potential losses that are incurred by the auditor in being associated with a particular client.Which of the following factors are not associated with increased engagement risk for the auditor?

Accepted Answer

All of the factors mentioned (management with questionable integrity, a failed company, and materially misstated financial statements) are associated with increased engagement risk for the auditor.

Question 12

New audit client acceptance
Discuss and analyze the audit risks involved with accepting a new client.Explain how an auditor might determine client acceptance.

Accepted Answer

The answer of New audit client acceptance
Discuss and analyze the...

Question 13

The risk based approach to auditing is dependent upon the auditor's ability to understand the business sufficient to identify and adjust to the residual risk left in account balances.What is the effect upon the nature,extent and timing of audit evidence if the auditor assessment of internal controls of the client indicates that a higher degree of residual risk remains in account balances?

Accepted Answer

If there is a higher degree of residual risk, the auditor will gather more data at or after year-end to ensure that the evidence is more reliable and relevant to the actual financial position.

Question 14

Understanding the client's processes
You are on the audit team of Buckner and Halston,LLP.Your firm as has accepted Boris Spyder,Inc. ,a manufacturer of fish food.What are some methods you will use in order to understand the business and accounting processes of Boris?

Accepted Answer

The answer of Understanding the client's processes
You are on the...

Question 15

In accepting a client,auditing standards suggest that the auditor focus on four questions.Which of the following is not one of those four required questions of the predecessor?

Accepted Answer

The four required questions for the predecessor are:
1) Integrity of management.
2) Disagreements with management as to accounting principles, auditing standards, or other similarly significant matters.
3) Any communications by the predecessor to the client's management or audit committee concerning fraud, illegal acts by the client, and matters related to internal control.
4) Understanding why the client changed auditors.

The strength of the client's internal control is not one of the required questions.

Question 16

Financial reporting risks are those risks that relate directly to the recording of transactions and the presentation of financial data in an organization's financial statements.Which of the following factors is not one of the key factors affecting financial reporting risk?

Accepted Answer

All of these factors affect financial reporting risks, including the competence and integrity of management, the complexity of the company's transactions and financial reporting, and the quality of the company's internal controls. None of these factors can be ignored when assessing financial reporting risk.

Question 17

In implementing the audit risk model,which of the following is not a component step in applying the model?

Accepted Answer

All of the listed options are component steps in applying the audit risk model.

Question 18

Risk is pervasive to the audit process.An overview of the risk process associated with an audit includes all of the following risks except which one?

Accepted Answer

The overview of the risk process associated with an audit typically includes audit risk, engagement risk, and business risk. Economic risk, while a relevant concept in finance and economics, is not typically considered a specific risk factor in the context of auditing.

Question 19

In implementing the audit risk model,which of the following is not a limitation of the model that makes its implementation difficult?

Accepted Answer

This statement is incorrect. Audit risk is subjectively determined and is influenced by the auditor's professional judgment. The other options are limitations of the audit risk model that make its implementation difficult.

Question 20

Engagement letters
Explain the overall purpose of an engagement letter.

Accepted Answer

The answer of Engagement letters
Explain the overall purpose of an...

Quiz 4: Audit Risk,business Risk,and Audit Planning

Analytical Techniques What are various assumptions underlying analytical techniques?