Auditing Chapter 4 HW

The possibility that an auditor will issue an unqualified opinion on materially misstated financial statement is called ___________ ______________

audit risk

The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated is known as ______ risk.

audit risk

The risk that a misstatement could occur in an assertion and would not be prevented, or detected and corrected, on a timely basis by the entity's internal control is known as ______ risk.

control

Substantive audit procedures that will reduce audit risk to an acceptably low level are designed using the planned level of ______________ risk

detection risk

The auditor can manipulate ______ risk by changing the scope of the auditor's test procedures.

detection risk

The effectiveness of the audit procedures and how well the procedures are applied by the auditor determines the ________________ risk.

detection risk

The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists is known as ______ risk.

detection risk

Unintentional misstatements of amounts or disclosures in financial statements are referred to as ___________

errors

The primary distinction between _________ and _____________ is whether the misstatement was intentional or unintentional.

errors and fraud

The risk of material misstatement refers to misstatements caused by ___________ or _____________

errors or fraud

An auditor tests an invoice for services provided and determines that the amount charged is incorrect. This is an example of a ______ misstatement.

factual

Misstatements about which there is no doubt are called __________ misstatements.

factual

True or false: At the completion of the audit, the actual or achieved level of audit risk is known with certainty by the auditor.

false

True or false: Observation and inspection audit procedures should be limited to current activities performed inside the organization.

false

Incentive, opportunity and rationalization are three conditions that are sometimes referred to as the ________ __________triangle

fraud risk

Risk factors relating to attitudes/rationalizations to report fraudulently include ______.

ineffective communication and enforcement of ethical values, board members alleging fraud, excessive management interest in increasing entity stock prices

The susceptibility of an assertion in an account or disclosure to a misstatement due to error or fraud that could be material is known as ______ risk.

inherent

At the assertion level, audit risk consists of ______________ risk, _____________ risk and ___________ risk.

inherent, control, and detection risk

An auditor determines that the percentage of allowance for bad debts set by management is unreasonably low based on past experience. This is an example of a ______ misstatement.

judgmental

The auditor should ______.

make direct inquiries of the audit committee when assessing risk of fraud, make inquiries of the internal audit function to assess their risk of fraud, inquire about management's knowledge of fraud within the entity

The combination of inherent risk and control risk is referred to in auditing standards as the risk of ___________ ___________

material misstatement

The auditor should obtain information about the conduct of operations, joint ventures, planned acquisitions, and major subsidiaries as part of learning about the ______.

nature of the entity

Risk factors relating to incentives/pressures to report fraudulently include ______.

need to obtain debt or equity financing, high degree of competition or market saturation, profitability expectations of external parties

Financial statement level risks are ___________ risks in that they apply to multiple components of the financial statements

pervasive

An objective of brainstorming with the audit team is emphasizing the importance of maintaining __________ _____________ throughout the audit regarding the potential for material misstatement due to fraud.

professional skepticism

Observation and inspection audit procedures include ______.

reading management reports, tracing transactions through the information system, visits to the entity's premises and plant facilities

An active role in the oversight of the assessment of the risk of fraud should be assumed by the ______.

audit committee

If management chooses not to eliminate an identified material misstatement, appropriate audit opinions include ______

Adverse, qualified, modified

The formula auditors use to determine the appropriate level of detection risk is ______.

DR = AR/RMM

Which of the following conditions are generally present when material misstatements due to fraud occur?

Incentive, Rationalization, Opportunity

When an auditor considers management's selection of an accounting policy to be inappropriate, a(n) _____________ misstatement arises.

Judgmental

Who addresses business risks by implementing a risk assessment process?

Management

True or False A deviation in the entity's performance measures may indicate a risk of misstatement in the related financial information.

True

True or False Auditors must consider the reliability of internal performance measures before using them for purposes of the audit.

True

True or False Internal performance measures provide information about progress towards meeting entity objectives.

True

True or False The engagement partner or manager should communicate the potential for misstatements from fraud to the audit team.

True

True or false The fraud discussion can be part of the discussion of understanding the entity and its environment.

True

If the auditor assesses the _______________ level of audit risk as being less than or equal to the ________________ level of audit risk, an unqualified report can be issued.

achieved, planned

Evaluations of financial information made through the study of plausible relationships among both financial and non-financial data are referred to as ________ ___________

analytical procedures

The auditor should develop expectation about plausible relationships that are expected to exist when performing preliminary _________ __________.

analytical procedures

Auditors assess the risk of material misstatement at the ______ level.

assertion

Internal performance measures include ______.

both financial and nonfinancial indicators

Internally generated performance measures include ______.

budgets, variance analysis, departmental performance reports, comparisons to industry competitors

To understand the nature of the entity, auditors should obtain information about the entity's: ______.

business operations, financing and financing activities, investments, financial reporting

Threats from significant events that could adversely affect an entity's ability to achieve its objectives and execute its strategies are _____________ ___________

business risk

The risk of material misstatement is also referred to as __________ risk because it stems from decisions made by the entity.

client