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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Chapter 7, Problem 25MCQ
To determine
Introduction: It is about the appropriate interpretation of the level of audit risk.
To choose: Select the appropriate statement about the appropriate interpretation of the audit risk when the auditor sets the audit risk at 1%
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Students have asked these similar questions
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..
Auditors make materiality judgments during the planning/risk assessment phase of the audit to be sure they ultimatelygather sufficient evidence during the audit to provide reasonableassurance that the financial statements are free of material misstatements.The lower the materiality threshold that an auditorhas for an account balance, the more the evidence that the auditormust collect. Auditors often use quantitative benchmarks such as 1% of total assets or 5% of net income to determine whethermisstatements materially affect the financial statements, but ultimatelyit is an auditor’s individual professional judgment as towhether a given misstatement is or is not considered material.a. What is the relationship between the level of riskiness of theclient and the level of misstatement in an account balancethat an auditor would consider material? For example,assume that Client A has weaker controls over accountsreceivable compared to Client B (therefore, Client A is riskierthan Client B).…
2)
During the audit of a client you come to the conclusion that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial report. Accordingly, assuming nothing else has come to your attention, you should issue:
a.
A qualified opinion.
b.
An unmodified opinion.
c.
An adverse opinion.
d.
A disclaimer of opinion.
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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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The auditors assessed risk of material misstatement at 0.50 and said they wanted to achieve a0.05 risk of failing to express a correct opinion on financial statements that were materiallymisstated. What detection risk do the auditors plan to use for planning the remainder of theaudit work?a. 0.20.b. 0.10.c. 0.75.d. 0.00arrow_forwardAuditors make materiality judgments during the planning phase of the audit in order to be sure they ultimately gather sufficient evidence during the audit to provide reasonable assurance that the financial statements are free of material misstatements. The lower the materiality threshold that an auditor has for an account balance, the more the evidence that the auditor must collect. Auditors often use quantitative benchmarks such as 1% of total assets or 5% of net income to determine whether misstatements materially affect the financial statements, but ultimately it is an auditor’s individual professional judgment as to whether a given misstatement is or is not considered material. What is the relationship between the level of riskiness of the client and the level of misstatement in an account balance that an auditor would consider material? For example, assume that Client A has weaker controls over accounts receivable compared to Client B (therefore, Client A is riskier than Client…arrow_forwardWhen the auditor identifies that a key control absent he/she would most probably: Select one: a. Examine 100% of the population O b. Consider any existing compensating controls c. Conclude that a material weakness or significant deficiency exists. O d. Issue a qualified or disclaimer of opinion on internal controls over financial reportingarrow_forward
- 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_forwardWhich of the following are reasons that auditors conduct analytical procedures at the risk assessment phase of the audit? Select all that apply. O assist with the identification of risk assess if the financial statements reflect the auditor's knowledge of their client O identify accounts at risk of material misstatement O highlight unusual fluctuations in accounts O helps with the calculation of materialityarrow_forwardThe risk that an auditor issues a clean opinion when the financial statements are materially misstated is called O inherent risk. control risk. audit risk. O detection risk.arrow_forward
- The risk that the financial statements are materially misstated prior to audit refers to the risk of material misstatement. Are auditors responsible for identifying and assessing the risk of material misstatement? What does the term "material misstatement" mean? Support your answer with an example from the ZAIN Financial Statements 2022.arrow_forwardWhich of the following is correct regarding the use of confirmation letters in an audit of financial statements: a. Blank confirmation letters are usually preferred when the auditor expects an overstatement error in the account balance. b. A reply from a receivable confirmation letter received from the customer through the client is considered an invalid reply, thus another set of confirmation letter should be sent. c. A positive confirmation letter is preferred over a negative confirmation letter when the auditor, based on his past experience with the client, expects minimal to zero errors. d. When an auditor does not receive a reply from a customer for a negative confirmation letter in a considerable period of time, the auditor should send out another set of confirmation letter.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_forward
- Q. According to ISA 200, Which of the following statement is true with respect of inherent limitation of audit? a- The auditor cannot reduce the audit risk to zero but can obtain absolute guarantee that the financial statements are free from material misstatements. b- The auditor can reduce the audit risk to zero but cannot obtain absolute guarantee that the financial statements are free from material misstatements. c- The auditor cannot reduce the audit risk to zero but cannot obtain absolute guarantee that the financial statements are not free from material misstatements. d- The auditor cannot reduce the audit risk to zero but cannot obtain absolute guarantee that the financial statements are free from material misstatements.arrow_forwardThe auditor has a responsibility to plan and perform the audit so as to obtain a _________ about whether the financial statements are free of material misstatement. Negative assurance Maximum assurance Absolute assurance Reasonable assurancearrow_forwardWhich 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.arrow_forward
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