Which of the following is appropriate about risk assessment? A. The assessed level of inherent and control risk can be sufficiently low, thus resulting to eliminating the need for substantive tests. B. Audit risk may be more effectively determined by assessing inherent and control risk separately. C. Detection risk is eliminated if an auditor were to examine 100 percent off the account balance or class of transactions. D. There is an iverse relationship between detection risk and the combined level of inherent and control risk

Which of the following is appropriate about risk assessment? A. The assessed level of inherent and control risk can be sufficiently low, thus resulting to eliminating the need for substantive tests. B. Audit risk may be more effectively determined by assessing inherent and control risk separately. C. Detection risk is eliminated if an auditor were to examine 100 percent off the account balance or class of transactions. D. There is an iverse relationship between detection risk and the combined level of inherent and control risk

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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7) In an environment that is highly automated an auditor determines that it is not possible to reduce detection risk solely by using substantive test of transactions. Under these circumstances the auditor most likely would: Perform test of controls to support a lower level of assessed risk. Increase sample size to reduce sampling risk and detection risk. Adjust the materiality level and consider the effect on inherent risk Apply analytical procedures and consider the effect on control risk
A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called: * Inherent risk O Control risk Statistical risk O Acceptable audit risk
When an audior increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase the: A. extent of tests of control B. level of detection risk C. extent of tests of detail D. Level of inherent risk
Inquiries of clients and reperformance normally have a low cost to perform. True False When analytical procedures reveal no unusual fluctuations in an account balance, the auditor will probably perform fewer test of details of balance for that account. True False When analytical procedures reveal no unusual fluctuations in an account balance, the auditor will probably perform fewer test of controls for that account. True False Analytical procedures can be used to provide reliable evidence for all balance-related general audit objectives. True False One advantage of using statical techniques when performing analytical procedures is that they eliminate the need for auditor judgement. True False The type of audit evidence known as documentation involves the auditor’s examination of tangible assets with results of the examination being recorded, or “documented,” in the auditor’s work papers. True False If a company’s cash ratio is greater than 1.0, the company is…
As the acceptable level of detection risk increases, an auditor may: Oa. Lower the assessed level of inherent risk. O b. Eliminate the assessed level of control risk from consideration as a planning factor. O c. Change the planned timing of substantive tests from year-end to interim. Od. Increase the risk of material misstatement.
Which of the following is consistent with an assessed level of control risk at below the maximum level after completing the auditors consideration of the client’s internal control over receivables? Increased materiality level in selecting receivables to be confirmed and use a positive confirmation letter. Increased materiality level in selecting receivables to be confirmed and use a negative confirmation letter. Decrease materiality level in selecting receivables to be confirmed and use a negative confirmation letter. d. Decrease materiality level in selecting receivables to be confirmed and use a positive confirmation letter.
The tolerable rate of deviation set by the auditor for tests of controls depends primarily on which of the following? a. The planned risk of assessing control risk too low. b. The dollar amount of substantive misstatements. c. The anticipated cause of the errors. d. The tolerable rate used in audits of other clients in the same industry.
Which of the following is correct about control risk? Select one: a. None of the others b. The risk that a material misstatement could occur in a relevant assertion and not be prevented or detected on a timely basis by the entity’s internal control. c. It is an alternative to substantive testing d. It is the same as inherent risk.
If the sample evidence does not support the planned level of control risk, the audit team coulda. Increase the assessed level of control risk.b. Perform additional substantive procedures, reducing the necessary level of detection risk.c. Expand the sample to achieve an observed ULRD less than the tolerable rate of deviation.d. All of the above are acceptable.
If there is a detection of one control deviation, the auditor can do which of the following? a. Increase the sample size O b. Test a compensation control Oc. Amend the auditor's decision to rely on the control O d. All of the above are options for an auditor responding to detection of a control deviatic
The difference between assessing control risk for IT control activities versus assessing control risk for manual control activities is best described as follows: Multiple Choice О in a manual environment it is important for the auditor to gain an understanding of the internal control activity before assessing control risk. О in an IT environment, it is not important to gain an understanding of the internal control activity before assessing control risk. О In an IT environment, it is likely that control risk will be assessed as low on largely all audit engagements. О the assessment process that needs to be undertaken for IT controls is essentially the same as would be taken for manual controls.