Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Question
Chapter 5, Problem 28MCQ
To determine
Introduction:There are two organizations which make auditing and accounting standards, AICPA (American Institute of certified public accountants) and PCAOB (Public company accounting oversight board). These two organizations have different roles and responsibility but also have some similarities as both perform accounting and auditing related works.
To choose: The statement that is included as part of AICPA’s principle governing an audit.
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The audit report provides reasonable assurance that thefinancial statements are free from material misstatements. The auditorassesses materiality in planning the audit to ensure that sufficientappropriate audit work is performed to detect material misstatements.However, the auditor is in a difficult situation because materiality isdefined from a user’s viewpoint.a. Define materiality as used in accounting and auditing, particularlyemphasizing the differences that exist between the FASB and theU.S. Supreme Court materiality definitions.b. Three major dimensions of materiality are: (1) the dollar magnitudeof the item, (2) the nature of the item under consideration, and(3) the perspective of a particular user. Give an example of each.c. Once the auditor develops an assessment of planning materiality,can it change during the course of the audit? Explain. If it doeschange, what is the implication of a change for audit work thatthe auditor has already completed?
Which of the following statements is not true with respect to the performance principle?a. Auditors are required to prepare a written audit plan during the planning stages of initialaudits but are not required to do so in continuing audits.b. Audit teams consider materiality in planning the audit, performing the audit, and evaluating the effect of misstatements on the entity’s financial statements.c. In assessing the risk of material misstatements, the audit team considers the effectivenessof the entity’s internal controls in preventing and detecting misstatements.d. Auditors are required to consider both the relevance and the reliability of evidence inevaluating whether the evidence they have gathered is appropriate.
Which of the following statements best describes auditors’ responsibility for detecting a client’s noncompliance with a law or regulation?a. The responsibility for detecting noncompliance exactly parallels the responsibility for errors and fraud.b. Auditors must design tests to detect all material noncompliance that indirectly affects the financial statements.c. Auditors must design tests to obtain reasonable assurance that all noncompliance with direct material financial statement effects is detected.d. Auditors must design tests to detect all noncompliance that directly affects the financial statements.
Chapter 5 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 5 - Prob. 1TFQCh. 5 - Prob. 2TFQCh. 5 - Prob. 3TFQCh. 5 - Prob. 4TFQCh. 5 - Prob. 5TFQCh. 5 - Prob. 6TFQCh. 5 - Prob. 7TFQCh. 5 - Prob. 8TFQCh. 5 - Prob. 9TFQCh. 5 - Prob. 10TFQ
Ch. 5 - Prob. 11TFQCh. 5 - Prob. 12TFQCh. 5 - Prob. 13TFQCh. 5 - Prob. 14TFQCh. 5 - Prob. 15TFQCh. 5 - Prob. 16TFQCh. 5 - Prob. 17TFQCh. 5 - Prob. 18TFQCh. 5 - Prob. 19TFQCh. 5 - Prob. 20TFQCh. 5 - Prob. 21TFQCh. 5 - Prob. 22TFQCh. 5 - Prob. 23TFQCh. 5 - Prob. 24TFQCh. 5 - Prob. 25MCQCh. 5 - Prob. 26MCQCh. 5 - Prob. 27MCQCh. 5 - Prob. 28MCQCh. 5 - Prob. 29MCQCh. 5 - Prob. 30MCQCh. 5 - Prob. 31MCQCh. 5 - Which of the following accounts would not be...Ch. 5 - Prob. 33MCQCh. 5 - Which management assertion addresses whether the...Ch. 5 - Prob. 35MCQCh. 5 - Prob. 36MCQCh. 5 - Prob. 37MCQCh. 5 - Prob. 38MCQCh. 5 - Prob. 39MCQCh. 5 - Prob. 40MCQCh. 5 - Prob. 41MCQCh. 5 - Prob. 42MCQCh. 5 - Prob. 43MCQCh. 5 - Prob. 44MCQCh. 5 - Prob. 45MCQCh. 5 - Prob. 46MCQCh. 5 - Prob. 47MCQCh. 5 - Prob. 48MCQCh. 5 - Prob. 49RSCQCh. 5 - Prob. 50RSCQCh. 5 - Ray, the owner of a small company, asked Holmes,...Ch. 5 - Prob. 52RSCQCh. 5 - Prob. 53RSCQCh. 5 - Prob. 54RSCQCh. 5 - Professional guidance indicates that the auditor...Ch. 5 - Prob. 56RSCQCh. 5 - Assume that an organization asserts that it has...Ch. 5 - Prob. 58RSCQCh. 5 - Prob. 59RSCQCh. 5 - Prob. 60RSCQCh. 5 - Prob. 61RSCQCh. 5 - Prob. 62RSCQCh. 5 - Prob. 63RSCQCh. 5 - Prob. 64RSCQCh. 5 - Prob. 65RSCQCh. 5 - Prob. 66RSCQCh. 5 - Prob. 67RSCQCh. 5 - Prob. 68RSCQCh. 5 - Prob. 69RSCQCh. 5 - Prob. 70RSCQCh. 5 - Prob. 71RSCQCh. 5 - Prob. 72RSCQCh. 5 - Prob. 73RSCQCh. 5 - Prob. 74RSCQCh. 5 - Prob. 75RSCQCh. 5 - Prob. 76RSCQCh. 5 - Prob. 77RSCQCh. 5 - Prob. 79RSCQCh. 5 - Prob. 80RSCQCh. 5 - Prob. 81RSCQCh. 5 - Prob. 82RSCQCh. 5 - Prob. 83RSCQCh. 5 - Prob. 84RSCQCh. 5 - Prob. 85RSCQCh. 5 - Prob. 86RSCQCh. 5 - Prob. 87RSCQCh. 5 - Prob. 89RSCQCh. 5 - Prob. 90FFCh. 5 - Prob. 91FF
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Similar questions
- With respect to fraudulent financial reporting, which one of the following statements is not correct? a.The risk that the auditor will not detect misstatement due to management fraud is greater than those due to employee fraud. b.It is difficult for the auditor to determine if misstatements in accounting estimates are caused by fraud or error. c.When the audit is properly planned and performed in accordance with ISAs, material misstatements are guaranteed to be detected by the auditor. d.Excessive pressure on management to meet expectations of third parties creates incentives forarrow_forwardWhen completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends ona. Whether there is a reasonable possibility that the company’s controls will fail to prevent or detect a misstatement of an account balance or disclosure.b. Whether a misstatement has actually occurred as a result of the deficiency.c. The magnitude of the potential misstatement resulting from the deficiency or the deficiencies.d. Both a and c are correct.e. All of the above are correct.arrow_forwardIn a financial statement audit, inherent risk represents a. The risk that misstatements could occur and not be detected by the auditor's procedures. b. The risk that misstatements could occur and not be prevented or detected by the system of internal control. c. The risk that the auditor fails to modify materially misstated financial statements. d. The susceptibility of an account balance to misstatement that could be material.arrow_forward
- Detection risk is the risk that a client's system of internal controls will not prevent or detect a material misstatement. O the auditor's procedures will not be effective in detecting a material misstatement. O an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. the financial statements are susceptible to a material misstatement.arrow_forwardWhich of the following statements are true a) The auditor has a responsibility to plan and perform the audit to obtain absolute assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. b) The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatement, whether caused by errors or fraud, that are not material to the financial statements are detected. c) The auditor has responsibility to plan and perform the audit to obtain reasonable assurance that misstatement, whether caused by errors or fraud, that are not material to the financial statements are detected. Only b) Only a) and c) Only a) Only a) and b)arrow_forwardWhat do auditors consider when determining the extent to which the internal auditors’ work will affect the auditors’ procedures? A. The materiality of the account balance or transaction, the risk of material misstatement of the assertions, and the amount of subjectivity involved in evaluating the evidence gathered. B. Only the risk of material misstatement of the assertions related to the account balance, transaction, or disclosure and the amount of subjectivity involved in evaluating evidence gathered. C. Only the amount of subjectivity involved in evaluating the evidence gathered. D. Only the materiality of the account balance or transaction and the risk of material misstatement of the assertions.arrow_forward
- Which of the following statements about materiality is considered true? a. Materiality is judged by the auditor using his professional knowledge and experience since materiality of an item varies with circumstances. b. Materiality could never influence the economic decisions of users taken on the basis of the financial information. c. The auditor should consider materiality but not its relationship with audit risk when conducting an audit. d. The size and nature of the item will not determine its materiality.arrow_forwardRisk of incorrect acceptance is defined as _______. the risk that the auditor concludes that a material misstatement does not exist when it does exist the risk that the auditor concludes that a material misstatement does exist when it does exist the risk that an audit firm incorrectly issued an unmodified opinion the risk that an audit firm incorrectly accepts a client The objective of auditors is to obtain _______. sufficient appropriate audit evidence regarding the assessed risks of material misstatement sufficient appropriate audit evidence regarding the assessed risks of immaterial misstatement sufficient appropriate audit evidence from internal control only regarding the assessed risks of material misstatement insufficient appropriate audit evidence regarding the assessed risks of material misstatement When an adverse opinion is issued regarding internal control over financial reporting (ICFR), the…arrow_forwardWhich statement is false? a. If control risk is assessed as low, the auditor cannot plan on relying on the controls to increase substantive procedures for account balances. b. The auditor will not perform tests of controls; instead, the auditor must plan for substantive procedures, without relying on the client's internal controls. c. Based on obtaining an understanding through risk assessment procedures, the auditor assesses control risk ranging from high (weak controls) to low (strong controls). d. Assessing control risk as high means the auditor does not have confidence that internal controls will prevent or detect material misstatements; assessing control risk as low has the opposite implication.arrow_forward
- Which sentence below is true about audit risk: A. Audit risk is the risk that a company may hire an incompetent auditor. B. Audit risk can be completely eliminated through appropriate sampling of transactions. C. Audit is what creates the demand for an audit. D. Audit risk is the risk that a "clean" opinion will be issued when, in reality, the financial statements are materially misstated..arrow_forwardWhich of the following is least likely to be a factor that might indicate to an auditor that an identified risk of misstatement requires special audit consideration? Complex calculations are involved, The rate of technical change is moderate in the industry, The potential for fraud seems high, Various subjective methods of application of a key accounting policy existarrow_forwardThe auditor is required to maintain professional skepticism throughout the audit. Which of the following statements concerning professional skepticism is false? a. A belief that management and those charged with governance are honest and have integrity relieves the auditor of the need to maintain professional skepticism b. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate assumptions in determining the nature, timing and extent of the audit procedures and evaluating the results thereof c. Professional skepticism is necessary to the critical assessment of audit evidence d. Professional skepticism is an attitude that includes questioning contradictory audit evidence obtainedarrow_forward
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