Gleim Chapter 3 Quiz

Which of the following is a false statement about materiality?

An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.

Which of the following statements reflects an auditor's responsibility for detecting fraud and errors?

An auditor should design the audit to provide reasonable assurance of detecting fraud and errors that are material to the financial statements

If specific information that implies the existence of possible noncompliance with laws and regulations that could have a material effect on the financial statements comes to an auditor's attention, the auditor should next

Apply audit procedures specifically directed to ascertaining whether noncompliance has occurred.

What is the primary objective of the fraud brainstorming session?

Assess the potential for material misstatement due to fraud

The acceptable level of detection risk is inversely related to the

Assurance provided by substantive procedures

An auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the

Auditor's determination about whether audit risk can be sufficiently reduced.

Analytical procedures used to form an overall audit conclusion generally include

Considering unusual or unexpected account balance that were not previously identified.

The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the

Engagement Letter

Which of the following factors most likely would cause an auditor to decline a new audit engagement?

Failure of management to satisfy the preconditions for an audit

In developing written audit plans, an auditor should design specific audit procedures that relate primarily to the

Financial Statement assertions

Inherent risk and control risk differ from detection risk in which of the following ways?

Inherent risk and control risk exist independently of the audit

A basic premise underlying analytical procedures is that

Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

Audit plans should be designed so that

The audit evidence gathered supports the auditor's conclusions

While performing an audit of the financial statements of a company for the year ended December 31, Year 1, the auditor notes that the company's sales increased substantially in December Year 1, with a corresponding decrease in January Year 2. In assessing the risk of fraudulent financial reporting or misappropriation of assets, what should be the auditor's initial indication about the potential for fraud in sales revenue?

There is a broad indication of financial reporting fraud.

Before accepting an audit engagement, an auditor should make specific inquiries of the predecessor auditor regarding the predecessor's

Understanding as to the reasons for the change of auditors

For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent

Yes - No - Yes

Prior to beginning the field work on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA should

perform risk assessment procedures

Because of the risk of material misstatement due to fraud, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

professional skepticism

To obtain an understanding of a continuing client in planning an audit, an auditor most likely would

read internal audit reports

Which of the following procedures would least likely result in the discovery of possible noncompliance with laws and regulations?

reviewing an internal control questionnaire