Smart 6-1

The risk of material misstatement of an assertion without considering internal control is called ______ risk. Multiple choice question. inherent audit control

inherent

The engagement letter should include information regarding ______. Multiple select question. applicable financial reporting framework the audit opinion to be expressed inherent limitations of the audit expected form and content of the reports

applicable financial reporting framework inherent limitations of the audit expected form and content of the reports

Generally accepted auditing standards require that indications of management fraud should be communicated to the ______, to assist in its oversight of the financial reporting process of the company. Multiple choice question. board of directors management audit committee

audit committee

During the planning stage of an audit, the auditors establish an understanding with their client as to the nature of services to be provided and the responsibilities of the ______.

auditor and client

Many inherent risks arise because of ______ risks faced by management, such as the possibility of material misstatement due to fraud. Multiple choice question. business audit control

business

Many inherent risks arise because of —--- risks faced by management, such as the possibility of material misstatement due to fraud.

business

The auditor's consideration of ______ risk involves analyzing the design and implementation of internal control to decide if the system appears adequate to detect and correct material misstatements. Multiple choice question. business control audit engagement

control

Materiality depends on the ______ and the nature of the item. Multiple choice question. number of errors dollar amount intent

dollar amount

The overall risk of association with a particular business is often referred to as —---- risk.

engagement

The risk of loss or injury to the auditors' reputation by association with a client that goes bankrupt or one whose management lacks integrity is called ______ risk. Multiple choice question. engagement business audit inherent

engagement

Successor auditors seek information from predecessor auditors on communication with the client and those charged with governance regarding ______. Multiple select question. fees charged for the audit fraud and noncompliance with laws and regulations internal control deficiencies and material weaknesses the timing of the audit and issuance of opinion

fraud and noncompliance with laws and regulations internal control deficiencies and material weaknesses

During the second stage of the audit process, auditors must obtain an understanding of the nature of —---- —---- because it allows them to identify accounts and classes of transactions that may be misstated and to tailor audit procedures to the existing system.

internal control

When a successor auditor is offered an auditing engagement, the successor auditor ______. is granted permission to contact the predecessor auditor by default is prohibited from accepting the engagement if communication with the predecessor auditor is denied by management must obtain the client's consent before discussing confidential information with the predecessor auditor

must obtain the client's consent before discussing confidential information with the predecessor auditor

Inherent risk is the risk ______. that auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated. that material misstatement will not be prevented on a timely basis by internal control. of material misstatement of an assertion without considering internal control.

of material misstatement of an assertion without considering internal control.

When an audit firm is considering a new client, they are required to attempt to communicate with the ______ auditor. Multiple choice question. successor current subsequent predecessor

predecessor

A company's management searching for auditors who would accept a questionable revenue recognition method as being in accordance with GAAP is called —------ for —------ principles.

shopping --- accounting

Test of account balances and transactions designed to detect any material misstatements in the financial statements are called —---- procedures.

substantive

Test of account balances and transactions designed to detect any material misstatements in the financial statements are called ______. Multiple choice question. further audit procedures substantive procedures test of controls

substantive procedures

The final step of the audit is to ______. Multiple choice question. issue the audit report perform final analytical procedures obtain a representation letter from management

issue the audit report

An audit committee must be composed of at least three ______. outside directors high-level employees of the corporation current members of the board of directors officers of the corporation

outside directors

During the second stage of the audit process, auditors use —--- —--- procedures to gather information to assess the risks of material misstatement of the financial statements and to design the nature, timing, and extent of further audit procedures.

risk assessment

If inherent risk is assessed as low and internal controls seem able to prevent or detect and correct misstatements, the auditors may decide to perform tests of support an assessment that —---- risk is low.

control

According to the FASB, if, in light of surrounding circumstances, the magnitude of an item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item, the omission of the item in a financial report is considered a(n) ______ deficiency.

material

The auditors perform a number of procedures near the completion of the audit including ______. Multiple select question. performing final analytical procedures performing final walk-throughs to identify sources of misstatement obtaining a representation letter completing the review of minutes of meetings completing the search to identify contingencies

performing final analytical procedures obtaining a representation letter completing the review of minutes of meetings completing the search to identify contingencies

During the planning stages of the audit, the auditors develop a(n) ______. Multiple select question. schedule audit plan opinion strategy

schedule audit plan strategy