EBK AUDITING & ASSURANCE SERVICES: A SY
10th Edition
ISBN: 9781259293245
Author: Jr
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 6, Problem 6.16MCQ
To determine
Concept Introduction:
Audit risk is a risk that audit may provide an inappropriate opinion on the basis of his findings during the audit. There are some inherent risks and avoidable risk which result in an audit risk.
Audit risk has its three components; inherent risk, control risk, and detection risk.
To choose: The case when the auditor can set the control risk high.
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After obtaining an understanding of an entitiy's internal control, an auditor may assess control risk at the maximum level for some assertions because he
A. performs tests of controls to restrict detection risk to an acceptable level.
B. identifies internal control policies and procedures that are likely to prevent material misstatements.
C. believes the internal control policies and procedures are unlikely to be effective.
D. determines that the pertinent internal control components are not well documented.
In performing a risk-based audit, when developing audit recommendations, the IT auditor should:
a) Use Computer Assisted Audit Techniques (CAATs) to test transactions.
b) Analyze the inherent risk, residual risk, and the cost of additional controls in relation to the potential for loss.
c) Determine if the risk is material based solely on auditor judgement.
d) Perform substantive procedures to eliminate control risk
EXPLAIN.Which of the following is not done by an auditor when obtaining an understanding of an entity's internal controls?
Identify the types of potential misstatements that can occur.
Consider the operating effectiveness of the internal controls.
Design substantive tests.
Consider factors that affect the risk of material misstatements.
Chapter 6 Solutions
EBK AUDITING & ASSURANCE SERVICES: A SY
Ch. 6 - Prob. 6.1RQCh. 6 - Prob. 6.2RQCh. 6 - Prob. 6.3RQCh. 6 - Prob. 6.4RQCh. 6 - Prob. 6.5RQCh. 6 - Prob. 6.6RQCh. 6 - Prob. 6.7RQCh. 6 - Prob. 6.8RQCh. 6 - Prob. 6.9RQCh. 6 - Prob. 6.10RQ
Ch. 6 - Prob. 6.11RQCh. 6 - Prob. 6.12MCQCh. 6 - Prob. 6.13MCQCh. 6 - Prob. 6.14MCQCh. 6 - Prob. 6.15MCQCh. 6 - Prob. 6.16MCQCh. 6 - Prob. 6.17MCQCh. 6 - Prob. 6.18MCQCh. 6 - Prob. 6.19MCQCh. 6 - Prob. 6.20MCQCh. 6 - Prob. 6.21MCQCh. 6 - Prob. 6.22MCQCh. 6 - Prob. 6.23MCQCh. 6 - Prob. 6.24MCQCh. 6 - Prob. 6.25PCh. 6 - Prob. 6.26PCh. 6 - Prob. 6.27PCh. 6 - Prob. 6.28PCh. 6 - Prob. 6.29PCh. 6 - Prob. 6.30PCh. 6 - Prob. 6.31P
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- Auditing standards indicate that if the preliminary control risk assessment is low, the auditor then gains assurance that the controls are operating effectively. What is meant by testing the operating effectiveness of controls? How does an auditor decide which controls to test?arrow_forwardInherent risk is: a. the risk of a misstatement occurring irrespective of any internal controls put in place by management. b. the risk that the auditor's testing procedures will not detect a material misstatement. c. assessed as high when there are no internal controls tested or relied upon by the auditor. d. assessed as low when there are good internal controls in place. Choose the correct answer and explain why it is the correct answerarrow_forwardWhich of the following describes the circumstances that exist when an auditor assesses control risk as high? O controls are not properly designed or implemented O good internal controls are in place auditor will test the controls to verify they were effective throughout the period O auditor should test the controlsarrow_forward
- When a substantive audit strategy is adopted, an auditor will O determine internal controls are effective in mitigating risks. O increase the amount of their substantive testing. O test controls extensively. O not need to document the internal control system.arrow_forwardIn obtaining audit evidence, the auditor should use professional judgment to assess the risk of material misstatement (which includes inherent and control risk) and design further audit procedures to ensure this risk is increased to an acceptably high level. TRUE OR FALSE? WHY?arrow_forwardAn auditor assesses control risk because it: A. is relevant to the auditor's understanding of the control environment B. provides assurance that the auditor's materiality levels are appropriate. C. indicates to xthe auditor where inherent risk may be the greatest. D. affects the level of detection risk that the auditor may accept.arrow_forward
- 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 riskarrow_forwardAfter obtaining a sufficient understanding of internal control, the auditor: a. Determines the preliminary assessment of control risk b. Determine the assessed levels of detection risk and inherent risk c. Assess detection risk to determine the acceptable level of inherent risk d. Assess the need to apply GAASarrow_forwardStudy and Evaluation of Management Control. The study and evaluation of management risk mitigation control is not easy. First, auditors must determine the risks and the controls subject to audit. Then they must find a standard by which performance of the control can be evaluated. Next they must specify procedures to obtain the evidence on which an evaluationcan be based. Insofar as possible, the standards and related evidence must be quantified. The following description gives certain information (in italics) that internal auditors would know about or be able to determine on their own. Fulfilling the requirement thus amounts to taking some information from the scenario and figuring out other things by using accountants’ and auditors’ common sense.The ScenarioAce Corporation ships building materials to more than a thousand wholesale and retail customers in a five-state region. The company’s normal credit terms are net/30 days, and no cash discounts are offered. Fred Clark is the chief…arrow_forward
- An auditor is likely to use procedures to support the operating effectiveness of internal controls. Which of the following would generally not be used ? Select one : O a. Re -perform client procedures O b. Examine documents , records, and reports O c. Make inquiries of appropriate client personnel O d. Analytical proceduresarrow_forwardThe audit risk model includes the four risks listed below. Match the type of risk with the related definition.A. Detection riskB. Control riskC. Inherent riskD. Audit risk___ 1. The probability that an auditor will give an inappropriate opinion on financial statements.___ 2. The probability that audit procedures will fail to produce evidence of material misstatements.___ 3. The probability that the client's internal control policies and procedures will fail to detect material misstatements if they have entered the accounting system.___ 4. The probability that material misstatements have occurred in transactions entering the accounting system.arrow_forwardAfter obtaining an understanding of the client's internal control, the auditor should consider whether A. the evidential matter obtained from the study of the internal control system can provide a reasonable basis for an opinion. B. the projected degree of effectiveness of internal control is justified. C. further testing of internal control procedures is likely to permit further reduction in the assessed level of control risk. D. sufficient knowledge has been obtained about the entity's entire system of internal control.arrow_forward
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