ACCTG32 FINAL ASSIGNMENT - IC AND ST

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. Inherent risk and control risk differ from detection risk in that inherent risk and control risk
a. arise from the misapplication of auditing procedures
b. may be assessed in either quantitative or nonquantitative terms
c. exist independently of the financial statement audit
d. can be changed at the auditor’s discretion

____ 2. Which of the following is an incorrect statement?

a. detection risk cannot be changed at the auditor’s discretion
b. detection risk bears an inverse relationship to inherent and control risks
c. the greater the inherent and control risks the auditor believes exists, the less detection risk
that can be accepted
d. the auditor might separate or combined assessments of inherent risk and control risk

____ 3. Inherent risk (relating to existence assertion) is often low for an account such as:
a. accounts receivable c. cash
b. marketable securities d. inventory

____ 4. Failure to record the acquisition of goods is a vialation of which audit objective?
a. accuracy c. authorization
b. occurence d. completeness

____ 5. An auditor assess control risk becasue it

a. is relevant to the auditor’s understanding of the control environment
b. provides assurance that the auditor’s materiality levels are appropriate
c. indicates to the auditor where inherent risk may be the reatest
d. affects the level of detection risk that the auditor may accept

____ 6. Auditors begin their assessements of inherent risk during audit planning. Which of the following would not
help in assessing inherent risk during the planning phase?
a. obtaining client’s agreement on the engaement letter
b. obtaining knowledge about the client’s business and industry
c. touring the client’s plant and offices
d. identifying related parties

____ 7. Which of the following is the most valid reason why auditors need to design and implement responses to
assessed risks of material misstatement?
a. a. To gain reasonable assurance that all fraud and errors will be detected.
b. To obtain sufficient appropriate audit evidence about the assessed risks as a basis for the
auditor?s opinion.
c. To afford management with a relief of its responsibility over the financial statements.
d. To provide management with resolutions to the assessed risks.
____ 8. Generally, the auditor does not need to perform additional audit procedures to audit areas,
specifically to those assertions, that do not have assessed risks of material misstatement.
When an account or a disclosure in the financial statements is deemed material, but does not have
assessed risks of material misstatement, the auditor does not need to perform any further audit
procedures for such an item.
a. True, true c. True, False
b. False, false d. False, True

____ 9. The auditor should determine overall responses to address the risks of material misstatement at the financial
statement level. Such responses least likely include
a. Emphasizing to the audit team the need to maintain professional skepticism in gathering
and evaluating audit evidence.
b. Assigning more experienced staff or those with special skills or using experts.
c. Incorporating additional elements of unpredictability in the selection of further audit
procedures to be performed.
d. Performing substantive procedures at an interim date instead of at period end.

____ 10. The auditor should determine overall responses to address the risks of material misstatement at the financial
statement level. Such responses mist likely include
a. Providing more supervision.
b. Making general changes to the nature, timing, or extent of procedures.
c. Both a and b.
d. Neither a nor b.

____ 11. The auditor’s overall responses to risks of material misstatement at financial statements level are least likely
documented in
a. A stand- alone document. c. The detailed audit program.
b. The overall audit strategy. d. All of the above.

____ 12. An auditor’s responses at the assessed risks of material misstatement at the assertion level may include
a. Tests of controls only
b. Substantive procedures only.
c. A combination of tests of controls and substantive procedures.
d. Any of the above.

____ 13. An auditor?s responses at assertion level least likely include

 a. General audit approach such as substantive procedures alone, or combined approach of
tests of controls and substantive procedures, for the overall direction of the audit.
b. Test of controls of credit approval process of sales for valuation assertion of accounts
receivable.
c. Test of details of inventory balances to actual inventory during the physical count for
existence assertion.
d. Substantive analytical procedures for completeness assertion of accounts payable.

____ 14. In designing further audit procedures, an auditor must consider

a. Relevant assertion(s). c. Significant risks.
b. Nature, timing, and extent. d. All of the above.

____ 15. Which of the following is the most valid reason why an auditor must consider financial statements assertions
when designing further audit procedures?
a. To be able to obtain reliable audit c. To be able to obtain sufficient audit
evidence. evidence.
b. To be able to obtain relevant audit d. To minimize the cost of obtaining audit
evidence. evidence.

____ 16. Which of the following is the most important consideration of the auditor when designing further audit
procedures?
a. Nature. c. Extent
b. Timing d. All are equally important.

____ 17. Which statement is incorrect regarding the nature of further audit procedures?
a. The nature of further audit procedures refers to their purpose and their type
b. Certain audit procedures may be more appropriate for some assertions than others.
c. The higher the auditor?s assessment of risk, the less reliable and relevant is the audit
evidence sought by the auditor from substantive procedures.
d. All of the above.

____ 18. The auditor shall design and perform tests of controls to obtain sufficient appropriate audit evidence as to the
operating effectiveness of relevant controls except when:
a. The auditor?s assessment of risks of material misstatement at the assertion level includes
an expectation that the controls are operating effectively,
b. The auditor intends to rely on the effectiveness of internal control.
 c. Substantive procedures alone cannot provide sufficient appropriate audit evidence at the
assertion level.
d. The auditor preliminarily assesses the internal control as ineffective, or the auditor does
not intend to rely on the effectiveness of internal control.

____ 19. In the audit of a private company, the auditor will test controls when control risk is initially assessed at:
1. Low
2.Moderate
3. High
a. Yes, No, Yes c. Yes, Yes, No
b. No, No, Yes d. No, Yes, No

____ 20. Which statement is incorrect regarding the timing of further audit procedures?
a. The timing refers to when audit procedures are performed or the period or date to which
the audit evidence applies.
b. The auditor may perform tests of controls or substantive procedures at an interim date or
at period end.
c. If the auditor performs tests of controls or substantive procedures prior to period end, the
auditor considers the additional evidence required for the remaining period.
d. All audit procedures can be performed prior to period end.