AUD - Identifying and Assessing the Risk of Mat Mis

Which of the following is true related to risks of material misstatement at the financial statement level? 1 Risks potentially pervasively impact many assertions. 2 Risks are limited to certain accounts and assertions. 3 They do not increase risks of material misstatement at the assertion level. 4 They are unrelated to the control environment or external conditions.

1 Risks potentially pervasively impact many assertions.

Which assertion relates to ensuring that a going concern uncertainty disclosure is included, as relevant, in financial statements? 1 Occurrence 2 Completeness 3 Classification and understandability 4 Accuracy and valuation

2 Completeness

An auditor's tests of controls for completeness for the revenue cycle usually include determining whether: 1 each receivable is collected subsequent to the year-end. 2 an invoice is prepared for each shipping document. 3 each invoice is supported by a customer purchase order. 4 each credit memo is properly approved.

2 an invoice is prepared for each shipping document.

Which of the following internal controls most likely addresses the completeness assertion for inventory? 1 Work-in-process account is periodically reconciled with subsidiary records. 2 Employees responsible for custody of finished goods do not perform the receiving function. 3 Receiving reports are prenumbered and periodically reconciled. 4 There is a separation of duties between payroll department and inventory accounting personnel.

3 Receiving reports are prenumbered and periodically reconciled.

Which of the following is true related to assessing risk of material misstatement of a financial statement audit? 1 Risk assessments must be stated in quantitative percentages. 2 Risk assessment have no impact on the detection risk that an auditor is willing to accept. 3 The higher the risk of material misstatement, the lower the detection risk. 4 The lower the risk of material misstatement, the lower the detection risk.

3 The higher the risk of material misstatement, the lower the detection risk.

Providing more supervision during an audit of a nonissuer in response to assessed risks of material misstatement at the financial statement level is an example of: 1 a substantive response. 2 further audit procedures. 3 tests of controls. 4 an overall response.

4 an overall response.

Which of the following best describes the reason an auditor performs a walkthrough of transactions from inception through financial statement presentation? I To ensure that the single transaction type involved in a walkthrough is properly recorded in the general ledger II To determine if a necessary control is missing or ineffective III To determine the different types of significant transactions handled by the process II I and III II and III I, II, and III

II and III

In making risk assessments, the auditor should identify and document the controls that are likely to prevent or detect and correct material misstatements in specific relevant assertions. Controls can either be directly or indirectly related to an assertion in which of the following ways? 1 The more indirect the relationship, the less effective that control may be. 2 The more indirect the relationship, the more effective that control may be. 3 The more direct the relationship, the higher the overall control risk may be. 4 The more direct the relationship, the lower the overall control risk may be.

1 The more indirect the relationship, the less effective that control may be.

In an audit of financial statements for which an auditor's assessment of risk is judgmental and may not be sufficiently precise to identify all risks of material misstatement, the auditor should take which of the following actions? 1 Determine the effectiveness of general controls over classes of transactions characterized by high transaction volume 2 Perform substantive procedures for all relevant assertions related to each material class of transactions 3 Discuss strategies to eliminate such risks with top management or those with equivalent authority and responsibility 4 Consider whether risk assessment procedures are appropriate given preliminary levels of materiality and tolerable misstatement

2 Perform substantive procedures for all relevant assertions related to each material class of transactions

At which level should identified risks of material misstatement be assessed for significant account balances (such as property and equipment) in the financial statement audit of a nonissuer? 1 Assertion level 2 Relevant assertion level 3 Account balance level 4 Financial statement line item level

2 Relevant assertion level

Which of the following should an auditor do when control risk is assessed at the maximum level? 1 Perform fewer substantive tests of details 2 Perform more tests of controls 3 Document the assessment 4 Document the control structure more extensively

3 Document the assessment

If there is a pervasive financial statement risk on a financial statement audit due to a material weakness in the control environment, which of the following is the most likely response? 1 Performing more audit procedures at an interim period 2 Seeking less persuasive evidence from substantive tests of details 3 Externally confirming certain cash, accounts receivable, debt, and customer contract terms 4 Decreasing the number of locations to be included in the audit in a geographically dispersed entity

3 Externally confirming certain cash, accounts receivable, debt, and customer contract terms

Which of the following is a step in an auditor's decision to assess control risk below the maximum? 1 Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls. 2 Perform tests of details of transactions and account balances to identify potential errors and fraud. 3 Identify specific control activities that are likely to detect or prevent material misstatements. 4 Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing.

3 Identify specific control activities that are likely to detect or prevent material misstatements.

Which of the following internal control procedures most likely would prevent direct labor hours from being charged to manufacturing overhead? 1 Periodic independent counts of work-in-process for comparison to recorded amounts 2 Comparison of daily journal entries with approved production orders 3 Use of time tickets to record actual labor worked on production orders 4 Reconciliation of work-in-process inventory with periodic cost budgets

3 Use of time tickets to record actual labor worked on production orders

When performing risk assessment procedures, the auditor should document all of the following concerning risks identified, the related controls evaluated, and the responses to the risks assessed except for: 1 key elements of the understanding obtained regarding each of the aspects of the entity and its environment identified. 2 the risks identified and related controls evaluated. 3 analytical procedures in the overall review phase of the audit. 4 the assessment of the risks of material misstatement both at the financial statement level and at the relevant assertion level and the basis for the assessment.

3 analytical procedures in the overall review phase of the audit.

Control risk should be assessed in terms of: 1 specific control activities. 2 types of potential fraud. 3 financial statement assertions. 4 control environment factors.

3 financial statement assertions.

Two assertions for which confirmation of accounts receivable balances provides primary evidence are: 1 completeness and valuation. 2 valuation and rights and obligations. 3 rights and obligations and existence. 4 existence and completeness.

3 rights and obligations and existence.

To determine whether a particular assertion is relevant to a significant account balance or disclosure, the auditor should evaluate all of the following except: 1 the nature of the assertion. 2 the volume of transactions or data related to the assertion. 3 the individual transactions that make up the account. 4 the nature and complexity of the systems, including the use of information technology, by which the entity processes and controls information supporting the assertion.

3 the individual transactions that make up the account. To determine whether a particular assertion is relevant to a significant account balance or disclosure, the auditor should evaluate: -the nature of the assertion, -the volume of transactions or data related to the assertion, and -the nature and complexity of the systems, including the use of information technology,

As the acceptable level of detection risk increases, an auditor may change the: 1 assessed level of control risk from below the maximum to the maximum level. 2 assurance provided by tests of controls by using a larger sample size than planned. 3 timing of substantive tests from year-end to an interim date. 4 nature of substantive tests from a less effective to a more effective procedure.

3 timing of substantive tests from year-end to an interim date.

Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases? 1 Is an authorized purchase order required before the receiving department can accept a shipment or the vouchers payable department can record a voucher? 2 Are purchase requisitions prenumbered and independently matched with vendor invoices? 3 Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have access to purchase requisitions? 4 Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

4 Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

Which of the following most accurately describes the process of a walkthrough? 1 Testing and documenting the results of tests of selected controls 2 Inspection of selected documents, records, and internal control documentation 3 Observation of an entity's activities and operations 4 Following a transaction from its origination until it is reflected in the financial statements

4 Following a transaction from its origination until it is reflected in the financial statements

Based on the assessed risk of material misstatement at the relevant assertion level, the auditor should consider which of the following matters in designing further audit procedures? 1 Results of analytical procedures 2 Sampling results 3 Tolerable misstatement 4 The characteristics of the class of transactions, account balance, or disclosure involved

4 The characteristics of the class of transactions, account balance, or disclosure involved

While performing interim audit procedures of accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate? 1 Move detailed analytical procedures from year-end to interim 2 Increase the dollar threshold of vouching customer invoices 3 Send negative accounts receivable confirmations instead of positive accounts receivable confirmations 4 Use more experienced audit team members to perform year-end testing

4 Use more experienced audit team members to perform year-end testing

Assessing control risk below the maximum level most likely would involve: 1 performing more extensive substantive tests with larger sample sizes than originally planned. 2 reducing inherent risk for most of the assertions relevant to significant account balances. 3 changing the timing of substantive tests by omitting interim-date testing and performing the tests at year-end. 4 identifying specific control activities relevant to specific assertions.

4 identifying specific control activities relevant to specific assertions.