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 7, Problem 21MCQ
To determine
Introduction:
Control risk are the risks that there is a probability of material misstatement of financial statement due to failures of internal controls in a business. Due to control failures, a business has more risks to experience unaccounted losses. It means there is a misstatement of financial statements wherein these reflect a profit when actually there was a loss.
To choose:The option which is true regarding control risk
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Students have asked these similar questions
Which of the following is not an underlying principle related to risk assessment?
OA. The organization should have clear objectives in order to be able to identify and assess the risks relating to
the objectives.
OB. The organization should monitor changes that could impact internal controls.
OC. The organization should consider the potential for fraudulent behavior.
OD. The auditors should determine how the company's risks should be managed.
Assuming a lack of internal control in a
client's system, the risk of material
misstatement is known as?
O Inherent risk
Client risk
O Detection risk
O Audit risk
Inherent 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 answer
Chapter 7 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 7 - Prob. 1TFQCh. 7 - Prob. 2TFQCh. 7 - Prob. 3TFQCh. 7 - Prob. 4TFQCh. 7 - Prob. 5TFQCh. 7 - Prob. 6TFQCh. 7 - Prob. 7TFQCh. 7 - Prob. 8TFQCh. 7 - Prob. 9TFQCh. 7 - Prob. 10TFQ
Ch. 7 - Prob. 11TFQCh. 7 - Prob. 12TFQCh. 7 - Prob. 13TFQCh. 7 - In terms of the timing of the risk response, the...Ch. 7 - Prob. 15MCQCh. 7 - Prob. 16MCQCh. 7 - Prob. 17MCQCh. 7 - Prob. 18MCQCh. 7 - Prob. 19MCQCh. 7 - Prob. 20MCQCh. 7 - Prob. 21MCQCh. 7 - Prob. 22MCQCh. 7 - Prob. 23MCQCh. 7 - Prob. 24MCQCh. 7 - Prob. 25MCQCh. 7 - Prob. 26MCQCh. 7 - Prob. 27MCQCh. 7 - Prob. 28MCQCh. 7 - Prob. 29RSCQCh. 7 - Prob. 30RSCQCh. 7 - Define the following terms: (a) performance...Ch. 7 - Prob. 32RSCQCh. 7 - Prob. 34RSCQCh. 7 - Prob. 35RSCQCh. 7 - Prob. 36RSCQCh. 7 - How does inherent risk relate to internal...Ch. 7 - Prob. 38RSCQCh. 7 - Prob. 39RSCQCh. 7 - Prob. 40RSCQCh. 7 - Prob. 43RSCQCh. 7 - Prob. 45RSCQCh. 7 - Prob. 46RSCQCh. 7 - Prob. 47RSCQCh. 7 - Prob. 48RSCQCh. 7 - Prob. 49RSCQCh. 7 - Prob. 52RSCQCh. 7 - Prob. 53RSCQCh. 7 - Prob. 54RSCQCh. 7 - Prob. 55RSCQCh. 7 - Prob. 56RSCQCh. 7 - Prob. 57RSCQCh. 7 - Prob. 58FF
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Similar questions
- How does inherent risk relate to internal controls? Why is it important to assess inherent risks of material misstatement prior to evaluating the quality of an organization’s internal controls?arrow_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_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_forward
- When obtaining an understanding of an entity’s internal control, an auditor should concentrate on the substance ofcontrols rather than their form because:Select one: a. Management may establish appropriate controls but not enforce compliance with them. b. The controls may be operating effectively but may not be documented. c. The controls may be so inappropriate that no reliance is contemplated by the auditor. d. Management may implement controls whose costs exceed their benefits.arrow_forwardWhich of the following does NOT describe inherent risk? O tends to be driven by the nature of the business or account O risk a misstatement occurs irrespective of any controls determined by the effectiveness of internal controls O auditor cannot influence inherent riskarrow_forward4. Overall risk management arrangements are the main preoccupation of the internal auditor who is concerned with all those controls fundamental to the achievement of organizational objectives. It is main ... On internal and external audit? A. Similarity B. Difference C. No D. Equality connection 5. From taking care of risk perspective what should be done if the Impact of risk is high and likelihood of risk is high ? A. Terminate B. Transfer C. Tolerate D. Communica te 6. From taking care of risk perspective what should be done if the Impact of risk is low and likelihood of risk is low? A. Terminate B. Transfer C. Tolerate D. Communica tearrow_forward
- 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.arrow_forwardWhich of the following is NOT an example of a significant deficiency in internal control? O evidence of an effective response to identified significant risks O misstatements not prevented or detected by internal controls O evidence of an ineffective entity risk assessment process O identification of management fraudarrow_forwardTests of controls are most likely to be omitted when(1) an account balance reflects many transactions.(2) control risk is assessed at less than the maximum.(3) the understanding of the control structure indicates that evaluating the effectiveness of control policies and procedures is likely to be inefficient.(4) the auditor wishes to increase the acceptable level of detection risk.arrow_forward
- Which of the following is NOT a requirement in management’s report on the effectiveness of internal controls over financial reporting?a. A statement of management’s responsibility for establishing and maintaining adequate internal control user satisfaction. b. A statement that the organization’s internal auditors have issued an attestation report on management’s assessment of the company’s internal controls. c. A statement identifying the framework management uses to conduct its assessment of internal controls. d. An explicit written conclusion as to the effectiveness of internal control over financial reporting.arrow_forwardWhich of the following does not accurately summarize auditors’ requirements regarding internal control?arrow_forwardThe underlying assumption of reasonable assurance regarding implementation of internal control means thata. auditor is reasonably assured that fraud has not occurred in the period.b. auditors are reasonably assured that employee carelessness can weaken an internal control structure.c. implementation of the control procedure should not have a significant adverse effect on efficiency or profitability.d. management assertions about control effectiveness should provide auditors with reasonable assurance.e. a control applies reasonably well to all forms of computer technology.arrow_forward
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