audit chapter 3, audit chapter 4, Audit CH 5

MNE and Associates is auditing Blanchard Company. MNE has decided to use 5% of income (earnings) before income tax as a benchmark. If income (earnings) before income tax was $33 million, what would be the amount of planning materiality? A. $1.65 million B. $31.43 million C. $660,000 D. $34.65 million

A. $1.65 million

1. In the Eilifsen and Messier (2015) study, the firms that used benchmarks of total assets and total revenues, used what percent of these figures to determine their planning materiality? A. 0.25% to 2.0% B. 2.0% to 2.5% C. 0.25% to 5.0% D. 5.0% to 7.5%

A. 0.25% to 2.0%

Auditors want a low audit risk of 5% and a low detection risk of 5%. In order to achieve this, what will inherent risk and control risk have to be? A. 100% for both B. 1% for inherent risk and 100% for control risk C. 1% for both D. The risks cannot be determined because there is not enough information.

A. 100% for both

Suppose auditors assess inherent risk and control risk as low, 25% and 8% respectively. If auditors want to keep audit risk relatively low at 5%, then what is detection risk? A. 2.50 or 250% B. .02 or 2% C. .05 or 5% D. 2.00 or 200%

A. 2.50 or 250%

A majority of companies in the Eilifsen and Messier (2015) study used _____________ percent of income before taxes to determine planning materiality. A. 5 B. 10 C. 15 D. 2

A. 5

Which of the following is most likely an example of an opportunity that increases the risk that a fraud may have been perpetrated? A. A high volume of transactions close to year-end B. A high turnover of clerical staff C. A high reliance on simple accounting transactions D. A high amount of depreciation expense

A. A high volume of transactions close to year-end

When auditors start with the underlying source documents and work forward to follow the transaction through to recording in the journal and ledger, this is referred to as ________. A. audit procedures B. substantive procedures C. tracing D. vouching

C. tracing

The cutoff assertion deals with ________. A. ensuring accounts are appropriately valued B. ensuring amounts are recorded in the correct accounts C. transactions and events have been recorded in the correct accounting period D. ensuring that assets, liabilities and equity interests exist.

C. transactions and events have been recorded in the correct accounting period

The concept of inherent risk is most closely tied to the idea of _________. A. global risk B. audit risk C. underlying business risks D. currency risk

C. underlying business risks

Auditors who are searching for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts and allocated to the correct general ledger accounts consider ________. A. existence B. classification C. valuation and allocation D. rights and obligations

C. valuation and allocation

Which of the following heavily influences the process of determining an audit strategy for an account or assertion? A. The risk of material misstatement B. Materiality C. Professional skepticism D. All of these options are correct.

D. All of these options are correct.

Which of the following is true in the case of an auditor communicating with a continuing client in the beginning of a contract? A. A new engagement letter is not needed if the terms of engagement remain unchanged B. No reminder of the engagement terms is needed if no revisions are made to the engagement letter C. No reminder of the engagement terms is needed if a continuance decision is made. D. No engagement letter is needed in all cases of continuance decision.

A. A new engagement letter is not needed if the terms of engagement remain unchanged

A significant risk is an identified and assessed risk of material misstatement that, in the auditor's judgment, requires special audit consideration. Which of the following would be classified as a significant risk? A. A risk related to a significant economic or accounting development. B. A risk related to transactions for a simple operating lease, like you sign when you rent an apartment. C. A risk that does not involve a related party transaction. D. A risk related to a transaction that involves a recording error, but was not intentional, like a fraud.

A. A risk related to a significant economic or accounting development.

AU-C 200.A22, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards states auditors should be skeptical if certain situations arise. Which situation is NOT included in those that AU-C 200.A22 presents? A. A situation indicates that there is the need for fewer audit procedures. B. Audit evidence recently gathered is contradictory to other evidence previously gathered. C. New information brings into question the reliability of client documents or responses to auditor inquiries. D. Conditions are observed that indicate evidence of possible fraud.

A. A situation indicates that there is the need for fewer audit procedures.

The audit risk model is presented as _______. A. AR = f (IR * CR * DR) B. AR = f (IR + CR + DR) C. AR = f (IR + CR - DR) D. AR = f (IR * CR) / DR

A. AR = f (IR * CR * DR)

Which of the following is not a fraud risk factor? A. Amount of ethics training provided by the company B. An incentive or pressure to commit fraud C. An opportunity to commit fraud D. Rationalization to justify fraudulent actions

A. Amount of ethics training provided by the company

What is performance materiality? A. Amount or amounts set by the auditors at less than the materiality level for particular classes of transactions, account balances, or disclosures B. Information or misstatements that impact a user's decision-making process for a reason other than its magnitude C. Information or misstatements that exceed the magnitude of an auditor's preliminary materiality assessment, which is a percentage of an appropriate benchmark D. None of these options are correct.

A. Amount or amounts set by the auditors at less than the materiality level for particular classes of transactions, account balances, or disclosures

What happens if an independence threat appears to be insurmountable? A. An audit firm should decline the offer to be the auditor of a prospective client or resign from the audit of an existing client. B. The audit firm should contact the State Board of Accountancy so they can make a press release to discourage other accountants from taking the engagement. C. The audit firm should make certain that safeguards are put in place to limit or remove those threats. D. The audit firm should take the engagement and continue to make certain that safeguards are put in place to limit or remove those threats.

A. An audit firm should decline the offer to be the auditor of a prospective client or resign from the audit of an existing client.

When the financial statements are materially misstated for a particular client, which of the following will constitute an audit risk? A. An auditor expressing an incorrect audit opinion B. The discontinuance of an internal process from a previous year C. Creditors and investors expressing a favorable opinion D. Some stakeholders not relying on the auditing firm

A. An auditor expressing an incorrect audit opinion

Which of the following examples most likely is an attitude or rationalization used to justify a fraud? A. An excessive focus on maximization of profits and/or stock price B. An excessive focus on unionization C. An excessive focus on vacation time D. An excessive focus on application of ethical standards

A. An excessive focus on maximization of profits and/or stock price

Which of the following are an evaluation of financial information by studying plausible relationships among both financial and non-financial data? A. Analytical procedures B. Closing procedures C. Trend analyses D. Common-size analyses

A. Analytical procedures

Which of the following was one of the largest accounting firms in the world during the 1990's and early 2000's? A. Arthur Andersen B. Laventhol & Horwath C. Arthur Young & Co D. Supreme, Inc.

A. Arthur Andersen

When reporting inventory, management claims that the items exist, are owned by the entity, represent a complete list of the inventory owned, and are valued appropriately. These are examples of _______. A. Assertions B. Accounting records C. Negative confirmation D. Positive confirmation

A. Assertions

What are the benefits of considering management assertions in the audit process? A. Assertions help guide the procedures conducted by auditors. B. Assertions guarantee that fraud will be found. C. It is possible to eliminate audit risk when assertions are used. D. Assertions eliminate the risk that inventory will be stolen.

A. Assertions help guide the procedures conducted by auditors.

Which of the following choices would indicate an appropriate change in the auditor's approach to the audit, when an increased level of risk is present in a certain area? A. Assignment of personnel with specialized skills for the area of increased risk B. Assigning less audit staff to the engagement C. Withdraw from the audit D. Obtain management assurances in writing pertaining to the increased area of risk

A. Assignment of personnel with specialized skills for the area of increased risk

What are tests of controls? A. Audit procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level. B. Audit procedures designed for the determining the amount of time spent testing the client's internal controls and conducting detailed testing of transactions and account balances. C. Audit controls for developing an audit plan that details the nature, extent, and timing of audit procedures to be performed. D. Audit timelines of when audit activities occur for the audit of a client that uses a calendar year-end.

A. Audit procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.

What is the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated? A. Audit risk B. Risk response C. Risk assessment D. Risk reporting

A. Audit risk

What term refers to the determination of the amount of time to spend testing the client's internal controls and conducting detailed testing of transactions and account balances? A. Audit strategy B. Risk response C. Reporting D. Risk assessment

A. Audit strategy

What are the primary procedures auditors use in the fraud risk assessment process? A. Brainstorming B. Accuracy checking C. Documentation D. Flowcharting

A. Brainstorming

What is the first stage of any audit? A. Client acceptance or a continuance decision B. Risk assessment C. Reporting D. Risk response

A. Client acceptance or a continuance decision

Which of the following are processes used by a client when finalizing the accounts for an accounting period? A. Closing procedures B. Analytical procedures C. Audit strategies D. Assurance services

A. Closing procedures

A comparison of account balances to a single line item, such as total assets, is termed ________. A. common-size analysis B. trend analysis C. substantive procedures D. compliance audit

A. common-size analysis

Auditors gather information through communication with individuals internal and external to the prospective client. Which of the following would be internal to the client? A. Communication with client personnel B. Communication with third parties C. Communication with the client's industry peers D. Communication with the previous auditor

A. Communication with client personnel

Which of the following would be considered as internal information gathered primarily about the integrity of client management? A. Communication with client personnel B. Communication with the client's bankers and lawyers C. Communication with the client's industry peers D. A review of articles in industry trade journals

A. Communication with client personnel

Which of the following processes is associated with the reporting phase? A. Conclusions are drawn when testing the client's controls. B. Decisions are made about extent and timing of detailed testing of account balances. C. Risk assessment procedures are performed to ensure appropriate attention is paid to transactions. D. Factors are identified that may impact the risk of a material misstatement.

A. Conclusions are drawn when testing the client's controls.

If a company refuses permission to contact its previous audit firm, what should the new auditor do? A. Consider the implications of that refusal when deciding whether to accept the engagement. B. Contact potential third parties to gain information about the client firm. C. Review newspaper and magazine articles about the client. D. Do a background check on the CEO of the company.

A. Consider the implications of that refusal when deciding whether to accept the engagement.

How are components of the audit risk model rearranged to solve for detection risk? A. DR = AR ÷ RMM B. DR = AR + RMM C. DR = AR - RMM D. DR = AR x RMM

A. DR = AR ÷ RMM

After determining materiality, which of the following is NOT a step for the auditor to follow? A. Determine who is most likely to commit fraud B. Determine the type and extent of risk assessment procedures to be performed C. Identify and assess the risk of material misstatements occurring at the financial statement level and the account balance level D. Begin development of an audit strategy

A. Determine who is most likely to commit fraud

Throughout all phases of the audit, auditors should keep questions in mind when gathering audit evidence. Which is of the following is an example? A. Do we need to perform more audit procedures? B. If management offers to take us to eat lunch during the audit, should we assume this is breakdown in controls? C. Should we assume that client management is dishonest until proven otherwise? D. Should we assume that any information from management and those charged with governance is correct?

A. Do we need to perform more audit procedures?

Which of the following reflects the earnings return on each issued share? A. Earnings Per Share B. Cash Earnings Per Share C. Price-Earnings Ratio D. Current Ratio

A. Earnings Per Share

Which of the following involves gaining an understanding of the client, identifying risk factors, developing an audit strategy, and setting planning materiality? A. Risk assessment phase B. Risk response phase C. Substantive procedures D. Tests of controls

A. Risk assessment phase

The application of human bias toward client preferences can impede professional skepticism. Which of the following is an example of human bias at work in the audit? A. Evaluating audit evidence consistent with client preferences B. No overt emphasis on selling additional services to the client C. No overt emphasis on keeping audit costs low D. Gathering complex evidence that is the most reliable and relevant

A. Evaluating audit evidence consistent with client preferences

What do auditors do when considering rights and obligations? A. Gather evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. B. Search for evidence to verify that asset, liability, and equity items on the balance sheet actually exist. C. Search for assets, liabilities, and equity items to ensure they have been recorded. D. Search for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts.

A. Gather evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity.

Which of the following is NOT an element of a firms' quality control system that can help ensure the appropriate application of professional skepticism? A. Heavy workload B. Firm culture C. Professional competence and assigning personnel to engagement teams D. Documentation

A. Heavy workload

Which of the following is a red flag of fraud? A. High turnover of key employees B. High inventory turnover rate C. High current ratios D. High quick ratios

A. High turnover of key employees

What is the first stage in audit risk assessment? A. Identification of accounts and related assertions most at risk of material misstatement, referred to as inherent risk B. Performance of audit procedures to identify transactions and accounts where the risk of material misstatement is lowest C. Test the existence assertion of recorded inventory D. Determination of the effectiveness of the client's system of internal controls

A. Identification of accounts and related assertions most at risk of material misstatement, referred to as inherent risk

Which of the following factors indicate higher inherent risks? A. Industry subject to changing trends B. Demand is not seasonal C. Industry has low chance of technological obsolescence D. Steady profitability

A. Industry subject to changing trends

Which of the following statements is true? A. Inherent risk is the susceptibility of an assertion to material misstatement before consideration of any related controls. B. Inherent risk assessment is affected by internal factors but not external factors. C. It is possible to eliminate audit risk. D. During the risk assessment phase, auditors will perform audit procedures to identify transactions and accounts where the risk of material misstatement is lowest.

A. Inherent risk is the susceptibility of an assertion to material misstatement before consideration of any related controls.

Which of the following would be least likely to help you assess the integrity of management? A. Interviews with human resources about its long-term disability provider. B. Interviews about the reputation of the client, its management, directors, and key stakeholders with the previous auditor. C. Interviews with management about its attitude to risk exposure. D. Interviews with the prior auditor about the client's reasons for switching audit firms, if the company was previously audited.

A. Interviews with human resources about its long-term disability provider.

Which of the following refers to measurements, agreed to beforehand, that can be quantified and reflect the success factors of an organization? A. Key Performance Indicators B. Acid-test ratio C. Current ratio D. Price-earnings ratio

A. Key Performance Indicators

Which of the following is a positive factor influencing client acceptance and retention decisions with respect to the integrity of management? A. Management places a premium on representational faithfulness of accounting information. B. Concerns exist about the integrity of management in business and accounting decisions. C. Management is preoccupied with meeting specific accounting numbers. D. Management integrity in business and accounting decisions seem to be situational and only remedied when noted by the auditors.

A. Management places a premium on representational faithfulness of accounting information.

Among methods used by auditors in gathering evidence, what are tests of control? A. Methods used to determine the operating effectiveness of the client's controls in preventing, or detecting and correcting, material misstatements at the assertion level. B. Methods designed to detect material misstatements at the assertion level. C. Methods used to gain an understanding of a client and its industry for the purpose of identifying risk of material misstatement. D. Methods used in the evaluation of financial information by studying plausible relationships among both financial and non-financial data.

A. Methods used to determine the operating effectiveness of the client's controls in preventing, or detecting and correcting, material misstatements at the assertion level.

In the context of identifying fraud, which of the following describes theft of inventory by employees or others? A. Misappropriation of assets B. Fraudulent financial reporting C. A loss that is not the result of fraud D. Cooking the books

A. Misappropriation of assets

When is it necessary to send a new engagement letter to a continuing client? A. Only when the terms of the engagement have changed. B. Every year. C. On a quarterly basis. D. Along with the CPA's bill for the first year of services.

A. Only when the terms of the engagement have changed.

Which of the following equals cash earnings per share (CEPS)? A. Operating cash flow divided by outstanding shares B. Profit divided by weighted average common stock shares issued C. Market price per share divided by earnings per share D. Market price per share divided by operating cash flow

A. Operating cash flow divided by outstanding shares

Which of the following is an amount set by the auditor that is used to make decisions about the extent of audit procedures for a particular class of transaction, account balance, or disclosure? A. Performance materiality B. Planning materiality C. Overall materiality D. Qualitative materiality

A. Performance materiality

Which of the following elements would normally be included in an auditor's engagement letter? A. Potential limitations of the audit engagement. B. Responsibility of management for any and all illegal acts perpetrated by its employees. C. Initial judgments pertaining to materiality. D. Whether or not the auditor will attempt to obtain negative assurance with respect to management's compliance with laws and regulations.

A. Potential limitations of the audit engagement.

Which term means that (or is defined as): auditors should maintain a questioning mind and thoroughly investigate all evidence presented by the client? A. Professional skepticism B. Audit risk C. Audit responsibility D. Audit Assertion

A. Professional skepticism

Which of the following equals earnings per share (EPS)? A. Profit divided by weighted average common stock shares issued B. Market price per share divided by earnings per share C. Operating cash flow divided by outstanding shares D. Cost of sales divided by average inventory

A. Profit divided by weighted average common stock shares issued

Which of the following denotes information or misstatements that exceed the magnitude of an auditor's preliminary materiality assessment? A. Quantitative materiality B. Qualitative materiality C. Professional materiality D. Professional judgement

A. Quantitative materiality

What should auditors aim for when working with audit risk? A. Reducing audit risk to an acceptably low level B. Eliminating audit risk C. Increasing audit risk to an acceptably high level Stabilizing audit risk from year to year in order to eliminate audit procedures

A. Reducing audit risk to an acceptably low level

What term signifies assertions that have a reasonable possibility of containing a material misstatement that would cause the financial statements to be materially misstated? A. Relevant assertions B. Rights and obligations C. Valuation and allocation D. Accuracy and valuation

A. Relevant assertions

Which of the following describes the board of directors of a company? A. Represent the shareholders of the company. B. Ensure the company is run to benefit the employees. C. Are all full-time employees of the company. D. Do not include the chief executive officer.

A. Represent the shareholders of the company.

Which of the following indicates the ability of a company to generate income from its average investment in total assets? A. Return on assets B. Return of stockholders' equity C. Gross profit margin D. Profit margin

A. Return on assets

Which of the following common profitability ratios indicates the ability of a company to generate income from the funds invested by its common stockholders? A. Return on stockholders' equity B. Return on assets C. Profit margin D. Gross profit margin

A. Return on stockholders' equity

Auditors gathering evidence to verify that recorded assets are owned by the entity and recorded liabilities represent commitments of the entity consider ________. A. Rights and obligations B. Completeness C. Occurrence D. Valuation and allocation

A. Rights and obligations

Which of the following is performed during the risk assessment phase? A. Risk and materiality assessment B. Detailed tests of controls C. Substantive testing of transactions and accounts D. Drawing conclusions based upon the evidence gathered

A. Risk and materiality assessment

An engagement letter is prepared by an auditor and acknowledged by a client _______. A. before the audit begins B. after the audit is completed C. before the client's year-end D. after the interim report is issued

A. before the audit begins

Which of the following acts directs that the audit committee members should be independent members of the board of directors, not executive directors or otherwise affiliated with the issuer? A. Sarbanes Oxley Act of 2002 B. Securities Act of 1933 C. Securities Exchange Act of 1934 D. Foreign Corrupt Practices Act of 1977

A. Sarbanes Oxley Act of 2002

What do auditors do when considering existence? A. Search for evidence to verify that asset, liability, and equity items on the balance sheet actually exist. B. Gather evidence to verify recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. C. Search for assets, liabilities, and equity items to ensure they have been recorded. D. Search for evidence that assets, liabilities, and equity items have been recorded at appropriate amounts.

A. Search for evidence to verify that asset, liability, and equity items on the balance sheet actually exist.

AU-C 200.A22, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards states auditors should be skeptical if which of the following situations arises during the audit? A. Situations that indicate the need for additional audit procedures beyond what is required by generally accepted auditing standards B. An environment of information stability and little change of client documents C. Conditions where gaining evidence of possible fraud is impossible D. Audit evidence recently gathered agrees with other evidence previously gathered

A. Situations that indicate the need for additional audit procedures beyond what is required by generally accepted auditing standards

What audit procedures are designed to detect material misstatements at the assertion level? A. Substantive procedures B. Tests of control C. Fraudulent financial reporting D. Misappropriation of assets

A. Substantive procedures

Which of the following is a negative factor influencing client acceptance and retention with respect to competence issues? A. The audit firm does not have the affiliation with specialists to meet client needs. B. The client has a weak accounting system with few internal controls. C. The audit firm has conflict of interest issues that cannot be resolved prior to client acceptance. D. There are significant regulatory reporting requirements with close monitoring by regulators.

A. The audit firm does not have the affiliation with specialists to meet client needs.

What type of direct inquiry does an auditor make of the audit committee regarding the potential for fraud? A. The auditor inquires about the audit committee's role in preventing and detecting fraud. B. The auditor inquires about the audit committee's role to communicate with vendors. C. The auditor inquires about the audit committee's role in the auditor brainstorming session. D. The auditor inquires about the audit committee's role in determining performance materiality for the audit.

A. The auditor inquires about the audit committee's role in preventing and detecting fraud.

What two factors lead to the development of an overall strategy? A. The auditor's determination of materiality and audit risk B. The auditor's determination of inherent risk and control risk C. The auditor's determination of the risk of material misstatement and professional skepticism D. The auditor's determination of performance materiality and fraud risk

A. The auditor's determination of materiality and audit risk

What must happen before planning the audit and implementing the phase of risk assessment? A. The client acceptance or continuation decision has to be made B. The risk response phase has to be completed C. The reporting phase must be undertaken D. The audit strategy must be planned

A. The client acceptance or continuation decision has to be made

In the context of an auditor's attitude, what basic assumption does maintaining professional skepticism entail? A. The client management is not always honest. B. The client management is not always dishonest. C. The client management is always dishonest. D. The client management is always honest.

A. The client management is not always honest.

When testing for the ________ assertion, auditors gather evidence that transactions and events have been recorded in the proper accounts. A. classification B. existence C. rights and obligations D. presentation and disclosure

A. classification

Which of the following is an example of an incentive or pressure that increases the risk of fraud? A. The client operates in a highly competitive industry B. The number of job offers that the company makes per year C. The due date of employee contracts D. The amount of stock options for lower-level managers

A. The client operates in a highly competitive industry

Which of these scenarios would cause the auditor to initiate special planning procedures? A. The client's inventory contains very specialized, hard to value items. B. Not all assets belonging to the company have been properly asset tagged. C. Management are forthright in their dealings with the auditors. D. The client recently repurchased outstanding stock.

A. The client's inventory contains very specialized, hard to value items.

Which overview defines audit strategy? A. The determination of the amount of time to spend testing the client's internal controls and conducting detailed testing of transactions and account balances. B. Gaining an understanding of the client, including identifying risk factors. C. Performing tests of controls and detailed substantive testing of transactions and accounts. D. Evaluation of results of the detailed testing in light of the auditor's understanding of the client and forming an opinion on the fair presentation of the client's financial statements.

A. The determination of the amount of time to spend testing the client's internal controls and conducting detailed testing of transactions and account balances.

In general, what does detailed testing of account balances provide? A. The evidence needed by auditors to determine if the financial statements are fairly presented B. Information about revising preliminary conclusions drawn during the risk assessment phase C. The exact amount of time spent gathering audit evidence D. A listing of the audit tests performed during all phases

A. The evidence needed by auditors to determine if the financial statements are fairly presented

An evaluation of the results of the detailed testing in light of the auditor's understanding of the client and forming an opinion on the fair presentation of the client's financial statements is associated with what phase of the audit? A. The reporting phase B. The response phase C. The risk assessment phase The risk of material misstatement phase

A. The reporting phase

What is the last phase of the audit? A. The reporting phase B. The risk response phase C. The audit strategy phase D. The risk assessment phase

A. The reporting phase

Identification of risk factors is typically associated with what phase of the audit? A. The risk assessment phase B. The risk response phase C. The reporting phase D. The audit strategy phase

A. The risk assessment phase

Which phase helps improve the efficiency and effectiveness of the audit? A. The risk assessment phase B. The risk response phase C. The reporting phase D. The audit strategy phase

A. The risk assessment phase

Which of the following is not a phase of the audit? A. The risk continuance phase B. The risk assessment phase C. The risk response phase D. The reporting phase

A. The risk continuance phase

What is the second phase of the audit? A. The risk response phase B. The reporting phase C. The audit strategy phase D. The risk assessment phase

A. The risk response phase

What is control risk? A. The risk that a client's internal controls will not prevent or detect a material misstatement on a timely basis. B. The assessed risk of material misstatement that, in the auditor's judgment, requires special audit consideration C. An audit risk assessment that involves the identification of accounts and related assertions most at risk of material misstatement D. A risk that management's assertion, or claim, that recorded inventory exists

A. The risk that a client's internal controls will not prevent or detect a material misstatement on a timely basis.

When testing for the ________ assertion, auditors ensure that all items included in the financial statements are appropriately presented and disclosures are clearly expressed. A. classification and understandability B. cutoff C. presentation and disclosure D. occurrence

A. classification and understandability

What is audit risk? A. The risk that an auditor expresses an inappropriate audit opinion when financial statements are materially misstated B. The risk that is explicit or implied and made by management regarding the recognition, measurement, presentation and disclosure of items included in the financial statements and notes C. The risk that a client's internal controls will not prevent or detect a material misstatement on a timely basis D. The assessed risk of material misstatement that, in the auditor's judgment, requires special audit consideration

A. The risk that an auditor expresses an inappropriate audit opinion when financial statements are materially misstated

Which of the following is a positive factor influencing client acceptance and retention with respect to special circumstances and unusual risks? A. There are minimal regulatory reporting requirements. B. There are significant regulatory reporting requirements with close monitoring by regulators. C. The client voices significant concerns about the scope of audit work. D. The client is experiencing profitability issues, weak cash flows, and is close to violation of debt covenants.

A. There are minimal regulatory reporting requirements.

MNE and Associates used the benchmark of 5% of income (earnings) before income tax and came up with $9.5 million as their planning materiality for Garden, Inc. MNE also determined that planning materiality using a benchmark of 1% total assets resulted in $23 million. How should MNE decide which planning materiality amount to use? A. Ultimately, the auditors must use their professional judgment to decide on the planning materiality amount, along with qualitative factors in the final assessment. B. The auditors would use the largest amount in order to detect larger material misstatements. C. The auditors would use the smaller amount in order to keep with the principle of conservatism. D. The auditors would average the two amounts because the use of two benchmarks provides greater precision.

A. Ultimately, the auditors must use their professional judgment to decide on the planning materiality amount, along with qualitative factors in the final assessment.

Which of the following is true of the influence of significant accounts and classes of transactions on inherent risk? A. When determination of account balance is objective, the inherent risk is low. B. When the transactions are routine and relatively homogenous, the inherent risk is high. C. When the account has high volume of transactions, the inherent risk is low. D. When the determination of an account balance is subjective, the inherent risk is low.

A. When determination of account balance is objective, the inherent risk is low.

When would auditors increase the amount of detailed audit procedures used to test the year-end account balances and transactions from throughout the year? A. When the detection risk is low B. When the inherent risk is low C. When the control risk is low D. When the inherent risk in high

A. When the detection risk is low

Where does the responsibility for preventing and detecting fraud rest? A. With client management and those charged with governance B. With the auditors C. Solely with the CEO D. Solely with the CFO

A. With client management and those charged with governance

Which of the following is an impediment to the application of professional skepticism? A. Workload of the auditors B. Lack of confidence in management C. A trend to keep audit costs high D. A sole focus on the audit engagement and no other services

A. Workload of the auditors

Should the client have internal controls in place to ensure related parties are being identified? A. Yes, and the client is required to disclose them. B. No, not necessarily. C. Yes, but the client in under no obligation to disclose them. D. None of these answer choices are correct.

A. Yes, and the client is required to disclose them.

In the context of assertions about classes of transactions and events for the period under audit, auditors considering occurrence gather evidence to verify that _______. A. a recorded transaction or event, such as a revenue or an expense item, actually took place and relates to the entity B. all transactions have been recorded and the financial statements are not understated or overstated because transactions have been omitted C. transactions and events have been recorded at appropriate amounts D. transactions and events have been recorded in the proper accounts

A. a recorded transaction or event, such as a revenue or an expense item, actually took place and relates to the entity

Auditors inspecting purchase orders for proper authorization by a manager before a purchase is made would be an example of ________. A. a test of controls B. client communication C. substantive procedures D. analytical procedures

A. a test of controls

An audit strategy is developed at the ________ level. A. account or assertion B. disclosure or materiality C. financial statement D. materiality or assertion

A. account or assertion

Auditors gathering evidence that transactions and events have been recorded at appropriate amounts consider _______. A. accuracy B. occurrence C. completeness D. classification

A. accuracy

Information is considered qualitatively material if it _______. A. affects a user's decision-making process for a reason other than its magnitude B. exceeds the dollar magnitude of an auditor's planning materiality assessment C. can be presented as a percentage of net income D. includes liquidity ratios of interest to bond holders

A. affects a user's decision-making process for a reason other than its magnitude

The completeness assertion relates to ________. A. all transactions and events that should have been recorded have been recorded B. all payroll accounting records are complete and accounted for C. all entries are recorded in the correct period D. all accounts are valued at their correct amounts

A. all transactions and events that should have been recorded have been recorded

An indicator that the auditor might need to adopt extended audit procedures would be best evidenced by __________. A. an unusual fluctuation in gross profit margin last year B. net sales is increasing approximately 3% per year C. a new competitor has entered the client's industry D. the client's current ratio has decreased slightly

A. an unusual fluctuation in gross profit margin last year

The PCAOB periodically issues Staff Audit Practice Alerts, and these _______. A. are meant to provide guidance in the application of the standards B. have the full weight of any audit standard C. are FASB standards D. are IRS regulations

A. are meant to provide guidance in the application of the standards

What do you call a statement or representation, explicit or implied, made by management regarding the recognition, measurement, presentation, and disclosure of items included in the financial statements and notes? A. assertion B. inspection C. tracing D. vouching

A. assertion

In the substantive approach, if there is no internal control in place, the auditors _______. A. assess RMM as high since both inherent and control risk are high B. assess inherent and detective risk as high C. assess control and detective risk as high D. issue a qualified opinion

A. assess RMM as high since both inherent and control risk are high

The information that auditors use when arriving at their opinion on the fair presentation of the client's financial statements is called _______. A. audit evidence B. relevant assertion C. receivable confirmation D. working papers

A. audit evidence

The auditor's opinion is expressed in the _______. A. audit report B. financial statement footnotes C. retained earnings statement D. risk response phase documentation

A. audit report

An engagement letter is prepared by the _______ and acknowledged by the _______ before the audit begins. A. auditor; client B. client; client C. auditor; state government D. federal government; client

A. auditor; client

The main purpose of an engagement letter is to _______. A. avoid any misunderstandings between the auditor and the client B. advertise the additional services that the CPA firm provides C. present the conclusion of the audit D. request any and all information that the CPA firm might need to complete the audit

A. avoid any misunderstandings between the auditor and the client

An auditor's request for information about the amount of cash held in the bank and details of any loans is referred to as a ________. A. bank confirmation B. financial confirmation C. negative confirmation D. audit confirmation

A. bank confirmation

The factor that influences client acceptance and retention decisions with respect to whether the accounting firm has the expertise to perform the services requested by the client is known as: A. competence issues. B. independence issues. C. integrity of management. D. special circumstances and unusual risk.

A. competence issues.

When testing for the ___________ assertion, auditors gather evidence that all transactions have been recorded and the financial statements are not understated or overstated. A. completeness B. cutoff C. valuation and allocation D. disclosure

A. completeness

An engagement letter is like a(an) _______. A. contract B. audit report C. job application D. note payable

A. contract

Holding everything else constant, as the auditor's evaluation of materiality_______, the auditor is looking to obtain a more precise conclusion about the financial statements. The _______precision of the audit will cause the auditor to perform more extensive audit procedures. A. decreases, increased B. increases, decreased C. increases, increased D. decreases, decreased

A. decreases, increased

Substantive procedures are designed to _______. A. detect material misstatements at the assertion level B. evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level C. determine the quantity of audit procedures to be performed D. determine when the audit procedures will be performed

A. detect material misstatements at the assertion level

If inherent risk is determined to be high for an account or assertion, the next step is to _______. A. determine if an internal control is in place to mitigate the risk of a material misstatement B. determine if professional skepticism is being used C. determine whether management is aware of the risk D. perform less extensive detailed substantive tests

A. determine if an internal control is in place to mitigate the risk of a material misstatement

The process used when developing an audit strategy at the account or assertion level begins with identifying inherent risks at the account or assertion level. The second step is to _______. A. determine whether an internal control can mitigate the risk factor B. increase the extent of detailed substantive procedures performed at year-end C. perform less extensive detailed substantive procedures at interim D. determine whether insurance can be purchased to eliminate internal controls

A. determine whether an internal control can mitigate the risk factor

When considering clients like Boeing, inventory will most likely be the largest current asset and prepaid expenses will be one of the smallest. As a result, the auditors should plan to _______. A. devote more audit time to the inventory account than the prepaid expenses account B. devote more audit time to prepaid expenses to the inventory account C. use more complex audit tests for inventory and more simple audit tests for prepaid expenses D. observe more material misstatements in prepaid expenses due to timing differences as compared to the inventory account

A. devote more audit time to the inventory account than the prepaid expenses account

The final phase of the audit involves _______. A. drawing conclusions based upon the evidence gathered and arriving at an opinion about the fair presentation of the financial statements B. detailed testing of internal controls, transactions, account balances, and disclosures the auditors have determined to be at high risk of material misstatement C. planning the audit by assessing risk to reduce audit risk to an acceptably low level D. gaining an understanding of the client and identifying factors that may impact the risk of a material misstatement occurring in the financial statements

A. drawing conclusions based upon the evidence gathered and arriving at an opinion about the fair presentation of the financial statements

A member of a company board is _________. A. either an executive or non-executive director B. always an executive director C. always a non-executive director D. none of these answer choices are correct

A. either an executive or non-executive director

If auditors determine a higher planning materiality level, they will plan to gather _______ extensive audit evidence. A. less B. more C. a greater proportion of D. complex

A. less

If the management of an entity is close to breaching a debt covenant that requires maintaining a certain current ratio, management may have an incentive to ________. A. either overstate current assets or understate current liabilities B. understate either current assets or current liabilities C. overstate either current assets or current liabilities D. either understate current assets or overstate current liabilities

A. either overstate current assets or understate current liabilities

An example of misappropriation of assets is _______. A. employees remaining on the payroll after ceasing employment B. improper asset valuation C. fictitious sales D. unrecorded liabilities

A. employees remaining on the payroll after ceasing employment

The primary assertion that is tested when using receivable confirmations is _______. A. existence B. occurrence C. accuracy D. completeness

A. existence

If an auditor suspects management is overriding controls relating to the closing process, the auditor should _________. A. extend audit procedures to carefully check adjusting and allocating entries that are prepared at the end of the period B. extend audit procedures to check all balance sheet accounts C. obtain management's written representation in lieu of further audit procedures D. make these audit procedures the focus of the audit engagement

A. extend audit procedures to carefully check adjusting and allocating entries that are prepared at the end of the period

The accuracy and valuation assertion relates to ________. A. financial and other information is disclosed fairly and in appropriate amounts B. ensuring records of ownership of assets is accurate C. the auditor's charges for fees and services provided D. all disclosures having been properly made

A. financial and other information is disclosed fairly and in appropriate amounts

The general type of fraud that involves intentionally misstating items or omitting important facts from the financial statements is typically known as _______. A. fraudulent financial reporting B. writing checks to fictitious vendors C. using company cars for personal use D. theft of inventory by employees

A. fraudulent financial reporting

Timing differences such as bringing forward the recognition of revenues and delaying the recognition of expenses are examples of ________. A. fraudulent financial reporting B. misappropriation of assets C. performance materiality D. professional skepticism

A. fraudulent financial reporting

Timing differences such as bringing forward the recognition of revenues and delaying the recognition of expenses is an example of _______. A. fraudulent financial reporting B. performance materiality C. planning materiality D. balance sheet benchmarks

A. fraudulent financial reporting

The ultimate responsibility for the financial reporting process rests with the _______, but the efficiency of achieving this goal is improved by the _______. A. full board; audit committee B. audit committee; executive directors C. non-executive directors; audit committee D. executive directors; full board

A. full board; audit committee

The new auditor should communicate with the previous auditor in order to _______. A. gain an understanding about the reasons for the change of auditors B. get all the passwords and logins to the client software C. get the previous auditor's work papers D. serve them with an official change of auditor notice

A. gain an understanding about the reasons for the change of auditors

The second stage in audit risk assessment is to _______. A. gain an understanding of the client's system of internal controls B. prevent fraud C. use subjective measurement in financial statements D. focus on the significant transactions outside of the client's normal course of business

A. gain an understanding of the client's system of internal controls

The assessed level of inherent and control risk for each assertion will _______. A. guide auditors in developing their audit strategy to gather appropriate audit evidence B. guarantee the effectiveness of the client's system of internal controls C. eliminate the risk of material misstatement for each account D. eliminate the need for professional skepticism

A. guide auditors in developing their audit strategy to gather appropriate audit evidence

A company's ability to meet its needs for cash in the short terms is called ________. A. liquidity B. profitability C. materiality D. due professional care

A. liquidity

An audit plan details the nature, extent, and timing of audit procedures to be performed. The "extent" of audit procedures is best defined as _______. A. how much testing will be done B. what type of procedure will be used C. the reliability and relevance of evidence obtained in the audit D. when the procedure will be performed

A. how much testing will be done

From a definitional perspective, information is considered material if it _______. A. impacts the decision-making process of users of the financial statements B. is diverse in nature C. only includes qualitative evidence D. includes income statement benchmarks

A. impacts the decision-making process of users of the financial statements

Positive confirmation is correspondence sent directly by an auditor to a third party, who must respond _________. A. in all circumstances B. only if it disagrees with the information provided C. only if it agrees with the information provided D. in circumstances where the client disagrees with the auditor

A. in all circumstances

Positive confirmations ask recipients to reply ________. A. in all circumstances. If a response cannot be obtained, auditors must obtain alternative evidence to determine if the balance exists. B. only if they disagree with the information provided. If a recipient does not respond, it is assumed that he/she agrees with the information provided C. in all circumstances. If a recipient does not respond, it is assumed that he/she agrees with the information provided D. only if they disagree with the information provided. If a response cannot be obtained, auditors assume that the receivable does not exist

A. in all circumstances. If a response cannot be obtained, auditors must obtain alternative evidence to determine if the balance exists.

When considering classification, auditors gather evidence that transactions and events have been recorded _______. A. in the proper accounts B. in the correct accounting period C. at appropriate amounts D. alongside equity interests

A. in the proper accounts

Generally speaking, the existence of related party transactions ________. A. increases inherent risk and should be investigated further B. decreases inherent risk and should be investigated further C. is illegal and should be reported to the Securities and Exchange Commission D. is not worth of further investigation

A. increases inherent risk and should be investigated further

In order to maintain professional skepticism, an auditor must also maintain _______. A. independence from management B. support of management's questionable assumptions C. situational reliability D. support of questionable financial disclosures

A. independence from management

The term that specifically refers to the use of computers to process, record, and store financial reporting data and other information is ________. A. information technology B. analytical procedures C. audit data analytics D. trend analysis

A. information technology

The risk of material misstatement is a function of _______. A. inherent risk and control risk B. control risk and deterrent risk C. inherent risk and deterrent risk D. inherent risk and deterrent risk

A. inherent risk and control risk

The auditor can set detection risk as high if _________. A. inherent risk and control risk are low B. inherent risk and control risk are high C. inherent risk is low and control risk is high D. inherent risk is high and control risk is low

A. inherent risk and control risk are low

In an audit strategy, the first step is to identify ________ risks during the ________ phase. A. inherent; risk assessment B. detection; risk response C. significant; reporting D. control; risk response

A. inherent; risk assessment

Tests of controls are also known as _______. A. internal controls testing B. substantive control testing C. tests of details D. material misstatement testing

A. internal controls testing

For illegal acts that have a material but indirect effect on the financial statements, the auditor's responsibility _______ performing specified audit procedures that may identify noncompliance. A. is limited to B. goes beyond C. does not include D. none of these answer choices are correct

A. is limited to

A type of analytical procedure in which auditors use their professional judgment to review accounting data to identify unusual or significant items that may be an indication of a material misstatement ________. A. is referred to as scanning B. is known as substantive testing C. is known as an audit review D. is no longer allowed under Sarbanes-Oxley.

A. is referred to as scanning

The risk assessment process is a(an) _______. A. iterative process B. one-time process C. concluding process D. infrequent process

A. iterative process

Total equity may be more reliable of a benchmark for determining planning materiality when a company is experiencing a _______. A. loss or very poor operating results B. high number of operating lease contracts C. large amount of property, plant, and equipment purchases significant volume of sales.

A. loss or very poor operating results

If results from the tests of controls show the internal control is effective at preventing and/or detecting material misstatements, auditors will conclude that control risk is ______ and overall risk of material misstatement (RMM) is ______. A. low; low B. high; high C. high; low D. low; high

A. low; low

When the economy is poor, a fall in profits can easily be explained to shareholders when most companies in the industry are also experiencing a decline in earnings; therefore, therefore when the economy is poor there is a tendency within an entity to _______. A. maximize write-offs B. maximize profits C. minimize revenues D. minimize profits

A. maximize write-offs

The general type of fraud that involves some form of theft is typically known as _______. A. misappropriation of assets B. improper asset valuation C. fictitious sales D. unrecorded liabilities

A. misappropriation of assets

Auditors may decide to perform some tests of controls or not perform any tests of controls, if inherent risk is assessed as ________. A. moderate or low B. high or moderate C. unusually high D. None of these options are correct.

A. moderate or low

Clients that prepare financial statements _______ are more likely to have well-established closing procedures than clients that prepare financial statements _______. A. monthly; annually B. annually; monthly C. half-yearly; monthly D. annually; half-yearly

A. monthly; annually

The auditor brainstorming session serves as an opportunity for _______. A. more senior members of the audit team to share important information about the client with new members of the audit team B. the audit team to share stories about other clients C. the audit team to relax and not worry about documentation D. partners to impress staff members within the accounting firm

A. more senior members of the audit team to share important information about the client with new members of the audit team

The determination of performance materiality is _________________and involves the exercise of professional judgment. A. not a simple mechanical calculation B. a simple mechanical calculation C. a simple manual calculation D. a mechanical calculation that includes solving for derivatives

A. not a simple mechanical calculation

Non-executive directors should ideally be _________. A. objective and knowledgeable about the industry B. employed by the client firm C. from an unrelated industry, to ensure maximum objectiveness D. expected to have the same level of knowledge about the company as executive directors

A. objective and knowledgeable about the industry

As per the appendix to AU-C 210, Terms of Engagement, a typical engagement letter for a private company client begins with a paragraph on the ________. A. objective and scope of the audit B. responsibilities of the auditor C. responsibilities of management D. fee arrangements and billings

A. objective and scope of the audit

The auditor may spend more time testing the existence assertion of recorded inventory in all of the following EXCEPT _______. A. office supply stores B. jewelry stores C. the Apple store that sell iPhones and iPads D. exclusive sunglass stores (e.g., selling Oakley and Ray Ban sunglasses)

A. office supply stores

If RMM is low, auditors are much more likely to perform substantive procedures for balance sheet accounts ______. A. one or two months prior to year-end B. one or two months after year-end C. at year-end D. None of these answer choices are correct.

A. one or two months prior to year-end

Sustainable cash flows from operations are those that are adjusted for _______ influences. A. one-time B. unexpected C. seasonal D. annual

A. one-time

In audit evidence, which of the following refers to the logical connection with the assertion being tested? A. Reliability B. Sufficiency C. Relevance D. Appropriateness

C. Relevance

The auditing procedure of observation ________. A. only provides evidence of a process at the time auditors observe it being carried out B. is less reliable than auditing associated ledger accounts C. should be performed only once during the audit for each account D. should be conducted by the internal audit function to save time

A. only provides evidence of a process at the time auditors observe it being carried out

The cash flows provided, or used, by _______ activities indicate a company's ability to generate cash. A. operating B. investing C. financing D. all of these answer choices are correct

A. operating

A(an)______________ is an amount set by the auditor that is less than planning materiality and is used to make decisions about the extent of audit procedures for a particular class of transaction, account balance, or disclosure. A. performance materiality B. quantitative materiality C. qualitative materiality D. auditing standard

A. performance materiality

The risk response phase involves the _______. A. performance of detailed tests of controls and substantive testing B. evaluation of the results of the detailed testing C. performing of a risk and materiality assessment D. development of an audit strategy

A. performance of detailed tests of controls and substantive testing

AU-C 300 Planning an Audit and AS 2101 Audit Planning primarily requires auditors to _______. A. plan the audit by assessing risk to reduce audit risk to an acceptably low level B. perform tests of the system of internal control, or tests of account balances, transactions, or disclosures C. make decisions about the extent and timing of detailed testing of account balances and transactions D. rely on the client's system of internal controls

A. plan the audit by assessing risk to reduce audit risk to an acceptably low level

Information is considered quantitatively material if it exceeds the magnitude of an auditor's _______ materiality assessment. A. planning B. performance C. qualitative D. quantitative

A. planning

Auditors make preliminary risk assessments while _______. A. planning the audit B. drawing conclusions about client controls, transactions, and account balances C. planning to rely on the client's system of internal controls D. testing the account balances and transactions

A. planning the audit

Auditors can control detection risk by _______. A. planning to perform more or less detailed audit procedures B. planning to perform more or less audit procedures on controls C. designing internal controls for the client D. designing the software processes that the client uses to process accounting information

A. planning to perform more or less detailed audit procedures

Market price per share divided by earnings per share equals ________. A. price-earnings ratio B. current ratio C. acid test ratio D. debt to equity ratio

A. price-earnings ratio

The use of performance materiality should reduce the ________________ and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole. A. probability that the sum of immaterial B. sum of the probabilities of material C. difference between the material D. the product of probabilities for material

A. probability that the sum of immaterial

Misstatements that impact a user's decision-making process for a reason other than its magnitude constitute ________ materiality. A. qualitative B. quantitative C. performance D. All of these answer choices are correct

A. qualitative

The appropriateness of audit evidence refers to the _______. A. quality of audit evidence gathered B. quantity of audit evidence gathered C. logical connection with the assertion being tested D. source, form, or nature of the audit evidence

A. quality of audit evidence gathered

The sufficiency of audit evidence refers to the _______. A. quantity of audit evidence gathered B. quality of audit evidence gathered C. logical connection with the assertion being tested D. source, form, or nature of the audit evidence

A. quantity of audit evidence gathered

The use of performance materiality should: A. reduce the probability that the sum of immaterial and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole. B. increase the probability that the sum of immaterial and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole. C. reduce the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole. D. increase the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole.

A. reduce the probability that the sum of immaterial and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole.

The term _______ refers to an affiliate, principal owner, manager, or other party that is not independent of the entity. A. related party B. primary beneficiary C. third party D. other beneficiary

A. related party

The quality of audit evidence is determined by its ________ in providing support for the conclusions on which the auditor's opinion is based. A. relevance and reliability B. accuracy and valuation C. classification and understandability D. occurrence and rights and obligations

A. relevance and reliability

The purpose of Alert No. 10 from the PCAOB is to _______. A. remind auditors of the requirement to appropriately apply professional skepticism throughout the audit, as well as various judgments about certain situations B. present the new auditing standard C. present a listing of which registered accounting firms failed to exercise professional skepticism D. present a detailed report listing the client companies that need more scrutinizing by audit firms regarding fraud red flags

A. remind auditors of the requirement to appropriately apply professional skepticism throughout the audit, as well as various judgments about certain situations

Developing an audit strategy is typically accomplished in the _______. A. risk assessment phase B. risk response phase C. reporting phase D. audit strategy phase

A. risk assessment phase

Auditors make decisions about the extent and timing of detailed testing of account balances and transactions during the ________phase of the audit. A. risk response B. audit strategy C. reporting D. risk assessment

A. risk response

Performance of detailed tests of controls and substantive testing is typically accomplished in the ____________ phase of the audit. A. risk response B. audit strategy C. reporting D. risk assessment

A. risk response

Audit risk is best defined as the _______. A. risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated B. application of risk assessment procedures C. element that helps form risk assessment D. risk of noncompliance with laws and regulations

A. risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated

In an analysis by Eilifsen and Messier (2015), of the eight largest U. S. public accounting firms in the study, _______ firms revealed that they use "income before income taxes" as the primary benchmark for determining planning materiality. A. seven B. six C. five D. four

A. seven

If new information comes to light that would cause the auditor to establish a different level of planning materiality, then the auditor _______. A. should examine the information and make adjustments to materiality as needed B. issue a qualified opinion as part of the audit report C. follow the auditing standards that recommend an appropriate percentage of total assets as a benchmark for planning materiality for all companies D. have management of the company select the appropriate benchmark for planning materiality

A. should examine the information and make adjustments to materiality as needed

Reading contracts or other agreements related to ________ transactions is one of the ways in which auditors identify related parties. A. significant unusual B. usual insignificant C. insignificant but unusual D. usual but significant

A. significant unusual

If an auditor is attempting to access the long-term viability of the client firm as a going concern, the auditor should attempt to calculate _________. A. solvency ratios B. liquidity ratios C. price-earnings multiples D. weighted average cost of capital

A. solvency ratios

Martin Inc. is being audited by the firm MNE and Associates. MNE's auditors decide that $100 million is the planning materiality and $50 million is the appropriate performance materiality at the account level. If all of Martin's account balances are below $50 million, the auditors will: A. still perform detailed some audit procedures on the account because the immaterial misstatements can be material in aggregate. B. to perform detailed audit procedures on the accounts because the sum of Martin's accounts is greater than $50 million. C. end audit procedures, both detailed and on controls, because performance materiality has reduced the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole. D. check the auditing standard guidelines for the determination of performance materiality.

A. still perform detailed some audit procedures on the account because the immaterial misstatements can be material in aggregate.

To be meaningful, the cash flow from operations amount should be adjusted for any one-time influences on cash flow from operations to determine _______ cash flow from operations. A. sustainable B. unexpected C. seasonal D. one-time

A. sustainable

Ability of cash flows from operations to cover current debt and dividends = ________. A. sustainable cash flow from operations/ (current portion of financing debt + dividends) B. (sustainable cash flow from operations/ current portion of financing debt) - dividends C. (current portion of financing debt + dividends)/ sustainable cash flow from operations D. current portion of financing debt + (dividends/ sustainable cash flow from operations)

A. sustainable cash flow from operations/ (current portion of financing debt + dividends)

Lower inherent risk traits are found where _______. A. technological developments are a minimal factor in the valuation of the client's assets B. the client's industry is experiencing a period of decline C. the client has insufficient working capital and is at risk of violating loan contracts D. the client's location is at risk of facing natural disasters, such as hurricanes and flooding

A. technological developments are a minimal factor in the valuation of the client's assets

In the substantive approach, if there is an internal control in place, the auditors may _______. A. test the effectiveness of the internal control B. issue a qualified opinion C. assess all procedures in the audit as having high audit risk D. withdraw from the audit

A. test the effectiveness of the internal control

Substantive procedures are also known as _______. A. tests of details B. tests of controls C. tests of complex transactions D. risk assessment

A. tests of details

The determination of when audit procedures will be performed is primarily dependent upon _______. A. the effectiveness of the client's controls B. the effectiveness of the client's human resources manager C. the audit fee D. the effectiveness of client's cloud functionality

A. the effectiveness of the client's controls

The requirement that the auditor have access to all information needed to perform the audit is stated in ________. A. the engagement letter B. substantive procedures C. an audit strategy D. AU-C 300 Planning an Audit

A. the engagement letter

An auditor is always particularly concerned with a metric that measures how long it takes the client firm to purchase inventory, sell the inventory, and collect the associated receivable. This metric is commonly referred to as _________. A. the gross operating cycle B. the financing cycle C. the investing cycle D. the inventory cycle

A. the gross operating cycle

What is the typical means by which an auditor outlines the details of the engagement, and communicates this to the client's management? A. An audit plan B. Audit working papers C. Engagement letter D. Risk assessment

C. Engagement letter

If management is preoccupied with meeting specific accounting numbers, this is a negative factor that should influence client acceptance and retention and is associated with _______. A. the integrity of management B. competence issues within the audit firm C. independence issues within the audit firm D. special circumstances and unusual risks

A. the integrity of management

Corporate governance may be best thought of as _________. A. the people, systems, and processes within companies used to ensure that companies are well-managed B. the level of control exerted by senior management C. a subsidiary entity that is controlled by a parent company D. Corporate donations to political parties and non-profit entities

A. the people, systems, and processes within companies used to ensure that companies are well-managed

The engagement letter does NOT include _______. A. the requirement that the auditor have access to all social security numbers of client employees in order to perform background checks B. an explanation of the scope of the audit C. the timing of the completion of various aspects of the audit D. an overview of the client's responsibility for the preparation of the financial statements

A. the requirement that the auditor have access to all social security numbers of client employees in order to perform background checks

The responsibility of ensuring sufficient appropriate audit evidence is gathered to arrive at an opinion is ________. A. the responsibility of the auditor B. the responsibility of management C. a joint responsibility between management and the auditor D. a function of internal control

A. the responsibility of the auditor

The amount of evidence that an auditor must collect is a function of __________. A. the risk of material misstatement in a relevant assertion for an account balance or class of transactions B. prior years' audit risk C. a detailed assessment of the clients' system of internal control D. the ability of the client to provide all documentation requested by the auditor

A. the risk of material misstatement in a relevant assertion for an account balance or class of transactions

What is audit risk? A. the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated B. the risk that an auditor expresses an objectionable audit opinion when the financial statements are materially misstated C. the risk that an auditor expresses an adverse opinion when the financial statements are materially misstated D. the risk that an auditor expresses an incompatible audit opinion when the financial statements are materially misstated

A. the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated

Reliability of audit evidence refers to ________. A. the source of the evidence and form or nature of the evidence B. the accuracy and reliability of the balances C. only the specific source of the information D. only the nature of the evidence only

A. the source of the evidence and form or nature of the evidence

Prevention of fraud refers to _______. A. the use of controls and procedures aimed at avoiding a fraud B. the use of controls and procedures aimed at uncovering a fraud should one occur C. auditors who assess fraud risk factors D. incentives to commit fraud

A. the use of controls and procedures aimed at avoiding a fraud

Detection of fraud refers to _______. A. the use of controls and procedures aimed at uncovering a fraud should one occur B. the use of controls and procedures aimed at avoiding a fraud C. auditors who assess fraud risk factors D. incentives to commit fraud

A. the use of controls and procedures aimed at uncovering a fraud should one occur

A detection risk of 1.5 or 150% means _______. A. there would be a 150% risk that the auditors' procedures will not be effective in detecting a material misstatement B. auditors will need to undertake 1.5 times the audit procedures planned in the initial stages of the audit C. there would be a 150% risk that the auditors' procedures will be effective in detecting a material misstatement D. auditors will perform extensive detailed testing of related account balances and use larger sample sizes because a 1.5 detection risk is a low detection risk

A. there would be a 150% risk that the auditors' procedures will not be effective in detecting a material misstatement

Assuming a lack of internal control in a client's system, the risk of material misstatement is known as? A. Audit risk B. Detection risk C. Inherent risk D. Client risk

C. Inherent risk

In a general timeline of when audit activities occur for the audit of a client that uses a calendar year-end, the period referred to as "interim" is typically during the latter part of the ________. A. third quarter and into the fourth quarter B. second quarter and into the third quarter C. first quarter and into the second quarter D. first quarter through fourth quarter

A. third quarter and into the fourth quarter

Auditors of private companies that do not have an audit committee or even a board of directors should communicate with _________. A. those charged with governance B. executive directors C. non-executive directors D. none of these answer choices are correct

A. those charged with governance

An example of fraudulent financial reporting is _______. A. timing differences such as bringing forward the recognition of revenues and delaying the recognition of expenses B. writing checks to fictitious vendors C. using company cars for personal use D. theft of inventory by employees

A. timing differences such as bringing forward the recognition of revenues and delaying the recognition of expenses

In addition to income before income taxes, another acceptable benchmark(s) for private company audits is(are) _______. A. total assets and total revenues B. net income C. income tax rate D. net liabilities

A. total assets and total revenues

Selecting source documents and working forward to follow the transaction through to recording in the journal and ledger is called _______. A. tracing B. vouching C. inquiring D. observing

A. tracing

Higher inherent risk traits are found where _______. A. transactions or account balances are derived from significant estimates B. transactions or account balances are easily confirmed with reliable sources C. the client's industry is thriving D. the client's location has minimal risk of being affected by a natural disaster

A. transactions or account balances are derived from significant estimates

A comparison of account balances over time constitutes _______ analysis. A. trend B. common-size C. ratio D. time series

A. trend

When classifying risks as being significant, consideration is given to whether the risk involves all the following except involvement of _______. A. very simple transactions B. fraud C. significant third parties D. significant subjectivity in measurement

A. very simple transactions

A pressure on auditors to maintain good client relationships to ensure future audit engagements leads to a change in thinking that could _________. A. weaken professional skepticism B. strengthen tests of controls C. reduce significant risk D. increase quantitative materiality

A. weaken professional skepticism

An audit plan details the nature, extent, and timing of audit procedures to be performed. The "nature" of audit procedures is best defined as _______. A. what type of procedure will be used B. the reliability and relevance of evidence obtained in the audit C. when the procedure will be performed D. how much testing will be done

A. what type of procedure will be used

Auditors are willing to accept a higher risk that their audit procedures may not detect a material misstatement ________. A. when detection risk is high B. when control risk is high C. when detection risk is low D. when control risk is low

A. when detection risk is high

Auditors would plan for audit procedures that may result in lower quality evidence and possibly a decreased quantity of evidence for that assertion ________. A. when detection risk is high B. when audit risk is low C. when management risk is low D. when control risk is high

A. when detection risk is high

Which of the following provides evidence for the occurrence assertion? A. Tracing B. Visualization C. Vouching D. Tests of controls

C. Vouching

In accounting, "year-end" is typically the period _______. A. when the client's accounting year has substantially finished, and the account balances reflect the totals for the entire year under audit B. that is 4-6 weeks after the auditors leave the client's location C. during the latter part of the third quarter and into the fourth quarter D. when most of the audit planning and risk assessment occur

A. when the client's accounting year has substantially finished, and the account balances reflect the totals for the entire year under audit

An audit plan details the nature, extent, and timing of audit procedures to be performed. The "timing" of audit procedures is best defined as _______. A. when the procedure will be performed B. how much testing will be done C. what type of procedure will be used D. the reliability and relevance of evidence obtained in the audit

A. when the procedure will be performed

A team of auditors is gathering less evidence than is necessary, or evidence that is the easiest to obtain, rather than obtain evidence that is the most reliable and relevant. Such a lack of professional skepticism could be indicative of the team's ______. A. workload B. culture C. size D. monitoring

A. workload

FILL IN THE BLANK: _______ is the information auditors use when arriving at their opinion on the fair presentation of the client's financial statements. Opinion evidence | Audit evidence | Privileged client information | Internal audit evidence

Audit evidence

The audit risk model can also be used for quantitative analysis in which all risks are stated as a percentage ranging from _______. A. 1% to 1% B. 1% to 100% C. 1% to 10% D. 1% to 5%

B. 1% to 100%

Which of the following helps discover and analyze patterns, identify anomalies, and extract other useful information in data underlying the subject matter of an audit? A. Tests of Control B. ADA C. XBRL D. GAAP

B. ADA

In a period of recession in a particular industry, the auditor would typically spend more time on which of the following accounts? A. Purchase discounts B. Allowance for doubtful accounts C. Preferred stock D. Equity method investment account with a noncontrolling interest in a subsidiary

B. Allowance for doubtful accounts

Which assertion is common to both (i) classes of transactions and events for the period under audit and (ii) account balances at the period-end? A. Classification B. Completeness C. Rights and obligation D. Valuation and allocation

B. Completeness

Considering the risk of overstatement of receivables due to premature revenue recognition that inflates revenues and receivables, which assertion for the accounts receivable balance is typically relevant? A. Accuracy B. Existence C. Completeness D. Rights and obligations

B. Existence

In the context of fraudulent financial reporting, which would most likely represent a risk factor? A. Low employee turnover at senior management levels B. High degree of competition in the particular industry C. The structure of the company includes subsidiary companies D. Revenue expectations from management have increased slightly from the prior year

B. High degree of competition in the particular industry

What procedures are designed to detect material misstatements at the assertion level (namely, tests of details and substantive analytical procedures)? A. Tests of controls B. Substantive procedures C. Analytical procedures D. Risk assessment procedures

B. Substantive procedures

When would auditors want to decrease the risk that their audit procedures will not detect a material misstatement? A. When detection risk is high B. When detection risk is low C. When inherent risk is low D. When control risk is low

B. When detection risk is low

Auditors spend a considerable amount of total audit time on the process of obtaining and evaluating audit evidence in support of management assertions, which is sourced primarily from the client's ________. A. working papers B. accounting records C. internal auditors D. audit data analytics

B. accounting records

When testing for the ________ assertion, auditors gather evidence that transactions and events have been recorded at appropriate amounts. A. cutoff B. accuracy C. existence D. completeness

B. accuracy

With respect to Key Performance Indicators, auditors should ________. A. disregard them as they would be unrelated to the audit B. ask management to provide a detailed explanation of which KPIs are of the most importance to them so that related audit procedures can be planned C. assign the task of investigation to the internal audit function D. assign new KPIs to the client as a result of the audit process

B. ask management to provide a detailed explanation of which KPIs are of the most importance to them so that related audit procedures can be planned

If an auditor is considering accepting a client in an industry that is unfamiliar to the auditor, the auditor should _________. A. not accept the engagement B. attempt to learn all matters that would materially pertain to the entity's business C. issue a disclaimer of opinion D. rely on the opinion of specialists the auditor hires

B. attempt to learn all matters that would materially pertain to the entity's business

During the risk assessment phase, the audit team should gain an understanding of the client's procedures for __________. A. identifying related parties and authorizing transactions with related parties. B. authorizing transactions with related parties and disclosing the relationships and transactions in the financial statements. C. authorizing transactions with related parties. D. All of the above are correct.

B. authorizing transactions with related parties and disclosing the relationships and transactions in the financial statements.

When there is a low risk of material misstatement with an assertion and the client's system of internal controls is considered effective at reducing risk, ________. A. detection risk is set at low B. detection risk is set at high C. inherent risk is set to medium D. control risk is ignored

B. detection risk is set at high

When testing for the ________ assertion, auditors search for evidence to verify that asset, liability and equity items on the balance sheet actually exist. A. presentation and disclosure B. existence C. occurrence D. valuation and accuracy

B. existence

Generally speaking, client firms engaged in international trade would be considered to have __________. A. lower inherent risk B. higher inherent risk C. lower control risk D. less complicated operations

B. higher inherent risk

Auditors communicating directly with a client's bank regarding the existence of the client's cash account balances at year-end would be an example of an: A. audit issue B. independent source C. internal source D. illegal communication

B. independent source

A common audit procedure that involves watching a process or procedure being carried out by client personnel or another party is known as ________. A. inspection B. observation C. recalculation D. reperformance

B. observation

With regard to management assertions, it is true to say that ________. A. all assertions apply to all accounts and balances B. only some assertions apply to accounts and their balances C. none of the assertions apply to accounts and their balances D. management should be consulted to determine which assertions apply to which accounts.

B. only some assertions apply to accounts and their balances

The use of IT in accounting processes includes _________. A. customer acquisition B. transaction initiation C. employee performance reviews D. interviewing accounting personnel

B. transaction initiation

The management assertion of classification deals with ________. A. ensuring vacancies are posted to appropriated classified ads B. transactions and events have been recorded in the proper accounts. C. classifying between the appropriate financial statements D. current versus non-current only

B. transactions and events have been recorded in the proper accounts.

When testing for the ________ assertion, auditors search for evidence that assets, liabilities and equity items have been recorded at appropriate amounts and allocated to the correct general ledger accounts. A. presentation and disclosure B. valuation and allocation C. existence D. occurrence

B. valuation and allocation

When an auditor selects transactions from the sales journal or ledger and then examines the underlying source documents, such as a shipping document and an invoice to the customer, this is known as ________. A. tracing B. vouching C. examination D. inspection of records

B. vouching

Which of the following statements are true? A. The auditing standards require specific percentages be applied as benchmarks in setting planning materiality. B. For both private and publicly traded companies, the primary users of financial statements are the stockholders. C. Auditors rely heavily on their professional judgment in setting planning materiality D. Audit firms do not vary in the method they use to set planning materiality in the risk assessment phase.

C. Auditors rely heavily on their professional judgment in setting planning materiality

If an auditor has determined that inherent risk for accounts receivable is high and wishes to verify the balance as accurate, the best corroborating evidence would be ________. A. a phone call to the client B. a negative confirmation sent to the entity in question C. a positive confirmation sent to the entity in question D. inspection of supporting documents relating to the receivables transactions

C. a positive confirmation sent to the entity in question

The specific procedures auditors will use to gather evidence are detailed in the ________. A. financial statements B. representation letter C. audit program D. flowchart

C. audit program

The procedure of auditors examining a client's unpaid invoices file and determining if payables have been properly created for any unpaid invoices would provide evidence in support of the _______ assertion. A. accuracy B. occurrence C. completeness D. cut-off

C. completeness

When testing for the ________ assertion, auditors search for assets, liabilities and equity items to ensure they have been recorded. A. cutoff B. valuation and accuracy C. completeness D. presentation and disclosure

C. completeness

When testing for the ________ assertion, auditors search for evidence that transactions have been recorded in the correct accounting period. A. rights and obligations B. valuation and accuracy C. cutoff D. existence

C. cutoff

When the auditor is considering the risk of material misstatement, they will attempt to identify major risks, determine how these risks could relate to fraud or error, consider the importance of the risks, and ______. A. notify management of these risks B. attempt to immediately resolve any identified risks C. determine the probability that the identified risks might result in material misstatements D. determine who is responsible for each identified risk

C. determine the probability that the identified risks might result in material misstatements

Initial agreements and understandings between the client and auditors should be documented and set forth in a(n) ________. A. legal letter B. confirmation letter C. engagement letter D. informal memorandum

C. engagement letter

The primary assertion being tested when using receivable confirmations is ________. A. completeness B. valuation and accuracy C. existence D. rights and obligations

C. existence

The Price-earnings (PE) ratio could best be defined as __________. A. value of the stock on the open market B. closely related to the dividend discount model C. how much a stockholder is willing to pay per dollar of earnings D. what dividend percentage payout the stock pays

C. how much a stockholder is willing to pay per dollar of earnings

Analytical procedures are conducted during the risk assessment phase of the audit to ________. A. highlight normal fluctuations in accounts B. aid in the elimination of risk C. identify accounts at risk of material misstatement D. complete the audit work

C. identify accounts at risk of material misstatement

Audit evidence will typically consist of ________. A. all observations made by the auditor B. all records prepared by the auditor, not including records received from external entities C. information that supports and corroborates management's assertions and any information that contradicts the assertions D. information that supports the auditor's initial assessment of audit risk

C. information that supports and corroborates management's assertions and any information that contradicts the assertions

Performing numerical accuracy tests for foreign currency translation, payroll taxes, interest on loans outstanding, and depreciation calculations ________. A. is the role of the internal audit function B. is the responsibility of management C. is referred to as recalculation D. is unnecessary if the client is assessed as having low control risk

C. is referred to as recalculation

Relevance of audit evidence refers to ________. A. its importance to the audit B. its relevance to outside investors and creditors C. its relationship to the assertion being tested D. its relevance to the balance sheet

C. its relationship to the assertion being tested

A common risk relating to closing entries is that _______. A. permanent accounts are often closed by mistake B. temporary accounts are often closed by mistake C. management may override controls relating to adjusting and closing entries D. temporary accounts, if closed, will carry a balance over to the subsequent accounting period

C. management may override controls relating to adjusting and closing entries

In addition to the annual financial statements, clients often prepare ________ financial statements. A. semi-monthly B. biweekly C. quarterly D. triennial

C. quarterly

Management assertions are best defined as ________. A. sometimes being present in the financial statements, and sometimes not. B. optional items for the auditor to check C. representations by management, explicit and implicit, contained within the financial statements. D. management communications with an attorney

C. representations by management, explicit and implicit, contained within the financial statements.

If an auditor was interested in determining a client firm's ability to generate income from its investments, the best ratio to calculate would be _________. A. the times interest earned B. debt to assets ratio C. return on assets D. return on equity

C. return on assets

When testing for the ________ assertion, auditors gather evidence to verify recorded assets are owned by the entity and recorded liabilities represent commitments of the entity. A. existence B. valuation and accuracy C. rights and obligations D. occurrence

C. rights and obligations

Inherent risk related to closing procedures would generally be increased when _______. A. a client is found to have strong closing procedures, and sound internal control practices relating to closing B. no errors and omissions are located when auditing the closing process C. staff assigned to deal with closing procedures are relatively inexperienced D. the closing process is relatively straightforward

C. staff assigned to deal with closing procedures are relatively inexperienced

An auditor is concerned about short-term interest payment obligations due to a recent major bond issue of the client. A ratio the auditor should consider determining is _________. A. debt-equity ratio B. quick (acid test) ratio C. times interest earned ratio D. short term payment ratio

C. times interest earned ratio

Which factors would likely increase an auditor's concern pertaining to risk of fraudulent financial reporting? A. Excessive amount of liquid assets that could easily be converted to cash. B. Low profitability/growth with respect to competitors in the same industry. C. Management participation in selection of accounting methods and principles. D. An extremely confusing and overly complex institutional structure, with blurred lines of authority.

D. An extremely confusing and overly complex institutional structure, with blurred lines of authority.

Which of the following is a listing of details of the audit procedures to be used when testing controls and when conducting detailed substantive audit procedures? A. Audit data analytics B. Accounting records C. Analytical procedures D. Audit program

D. Audit program

When scrutinizing a statement of cash flows in an attempt to gain a better understanding of the client, which would be most surprising to an auditor? A. An increase in accounts receivable B. A decrease in payables C. Negative investing cash flows D. Negative operating cash flows

D. Negative operating cash flows

In an audit situation, which of the following risks can be reduced to zero? A. Detection risk and inherent risk, but not control risk B. Inherent risk, control risk, and detection risk C. Control risk and detection risk, but not inherent risk D. Neither detection risk, inherent risk, nor control risk.

D. Neither detection risk, inherent risk, nor control risk.

Which of the following is/are among the procedures used by auditors to identify related parties? A. Review financial statements of competitors. B. Trace inventory quantities from the floor to the ledger. C. Gain an understanding of the industry. D. Review correspondence from the client's advisors, such as attorneys or consultants.

D. Review correspondence from the client's advisors, such as attorneys or consultants.

An auditor has determined that a client's 'days in receivables' ratio has slowly increased over the last three years. Which of the following could be a possible reason for this? A. The client has hired a collection agency which is extremely efficient at collecting. B. The receivables have been secured as collateral for a recent capital asset purchase. C. The accounts receivable department has implemented a new IT system, making collections much quicker and more efficient. D. The accounts receivable turnover ratio has decreased due to poor internal controls related to credit granting procedures.

D. The accounts receivable turnover ratio has decreased due to poor internal controls related to credit granting procedures.

Of the following scenarios, which would most likely result in an audit firm not accepting an engagement? A. Some internal controls related to credit granting procedures are not operating effectively. B. IT systems and architecture are antiquated and not capable of current processing and recording requirements. C. Significant related party transactions, of which the auditor has been advised, are a routine part of business. D. The client has advised that the auditor will be unable to confirm certain inventories with no valid reason given.

D. The client has advised that the auditor will be unable to confirm certain inventories with no valid reason given.

Common factors that influence inherent risk are ________. A. importers and exporters B. major suppliers C. discounts D. all of the above

D. all of the above

The audit committee is responsible for the ________ of the auditors. A. oversight and appointment B. appointment and compensation C. oversight and compensation D. all of the above

D. all of the above

During which phase or phases of the audit do auditors adopt the attitude of professional skepticism? A. risk response phase B. reporting phase C. risk assessment phase D. all phases of the audit

D. all phases of the audit

Which of the following is/are the primary means of communication for gathering information while assessing management integrity? A. communication with the previous auditor, only B. communication with client personnel and with the client's industry peers, only C. communication with the client's industry peers, only D. communication with the client personnel, the client's industry peers and the previous auditor

D. communication with the client personnel, the client's industry peers and the previous auditor

Receivable confirmations provide very little evidence regarding the _______ assertion. A. accuracy B. rights and obligation C. occurrence D. completeness

D. completeness

Auditors inspecting a sample of accounts payable balances listed on the ledger and verifying that they are true payables owed by the client gather evidence in support of the _______ assertion. A. accuracy B. occurrence C. completeness D. existence

D. existence

When an auditor asks questions verbally or in written form of knowledgeable individuals internal to the client, this is referred to as ________. A. confirmation B. attestation C. affirmation D. inquiry

D. inquiry

An auditors' evaluation of financial information by studying plausible relationships among both financial and non-financial data ________. A. is known as recalculation B. is known as reperformance C. is referred to as substantive testing D. is referred to as analytical procedures

D. is referred to as analytical procedures

Using ADA software typically makes the audit _______. A. more comprehensive but less efficient. B. less comprehensive and less efficient. C. less comprehensive but more efficient. D. more comprehensive and more efficient.

D. more comprehensive and more efficient.

At the assertion level, the risk of material misstatement refers to risks that affect classes of ________. A. account balances, only B. transactions and disclosures, only C. disclosures, only D. transactions, account balances, and disclosures

D. transactions, account balances, and disclosures

FILL IN THE BLANK: _______ involves the examination of documents and physical assets. Observation | Inspection | Examination | Recording

Inspection

FILL IN THE BLANK: _______ refers to the quantity of audit evidence gathered. Appropriate | Timely | Sufficient | Complete

Sufficient

Information is considered quantitatively material if it _______. a. exceeds the dollar magnitude of an auditor's planning materiality assessment b. affects a user's decision-making process for a reason other than its dollar magnitude c. indicates the audit client is in danger of breaching a debt covenant d. indicates there is a change in client operations that affects the level of risk faced by the client

a. exceeds the dollar magnitude of an auditor's planning materiality assessment

FILL IN THE BLANK: Once risks are identified, auditors assess the risk of material misstatement at the _______ level for these significant classes of transactions and account balances. relevant assertion level | account | financial statement | disclosure

relevant assertion level

FILL IN THE BLANK: Evidence gathered from a knowledgeable source independent of the client is more _______ than evidence gathered solely from internal client sources. complete | accurate | reliable | questionable

reliable