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 28MCQ
To determine
Introduction: It is about risk response with regards to nature, timing and extent.
To choose: Select the false statement out of given options
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Which of the following conditions identified during fieldwork of an audit is most likely to affect the auditor's assessment
of the risk of misstatement due to fraud?
a. Computer generated documents.
b. Year-end adjusting journal entries.
O c. Checks for significant amounts outstanding at year-end.
O d. Missing documents.
Which 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 materiality
If the auditor believes that a misstatement is or might be intentional and the effect on the financial statements could be material or cannot be readily determined, the auditor should do which of the following?a. Inquire of management as to the possibility of fraud.b. Discuss with the audit committee what should be done to prevent possible future misstatements.c. Perform procedures to obtain additional audit evidence to determine whether fraud has occurred or is likely to have occurred.d. Both a and b are correct.e. None of these is correct.
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
- In 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_forwardAn auditor discovered the following matters while performing tests of controls: 1.An obligation for insurance was not paid because the voucher that was prepared was never recorded. Required: a.What control would have prevented or detected each of the above misstatements? b.What test should the auditor perform to test the control? c.To which financial statement assertion does the misstatement relate?arrow_forwardWhen performing a financial statement audit, auditors are required to explicitly assess the risk of material misstatement due to:Select one: a. Illegal acts. b. Fraud. c. Business risk. d. Errors.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_forwardWhich of the following statements is incorrect? Group of answer choices It is common, but not required, to use analytical procedures as substantive tests Tests of transactions are often performed during the interim audit work As the risk of material misstatement in the financial statements increases, the auditor relies more on substantive analytical procedures rather than tests of details of transactions and balances Tests of details of balances are normally done during the year-end audit workarrow_forward
- Which one of the following is other indicator or events or conditions that may cast significant doubt continue as a going concern? the entity's ability If the auditor found misstatements in financial statements resulting from fraud, the auditor encounters exceptional circumstances that bring into question his ability to continue performing the audit. the auditor shall : Ask the management for his withdrawal. Determine the professional and legal responsibilities applicable in the circumstances. Withdraw from the engagement immediately. Report to audit team regarding withdrawal. If the auditor identify and assess the risk of material misstatement due to fraud or error relating entity's related activities auditor shall: 1. Inquiry with management and others within the entity. Auditing ENarrow_forwardThe results of analytical procedures may identify previously unrecognized risk of material misstatement in that case an auditor requires to O a. Modify the engagement letter O b. Revise the assessment of the risk of material misstatement O C. Terminate the audit and client relationship O d. Unmodified the planned audit proceduresarrow_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_forward
- Which of the following is an incorrect statement? a. The amount of audit work should vary inversely with the likelihood of material misstatements existing in the accounting records. b. The better the organization’s control structure, the less likely it is that material misstatements will be present c. Complex or unusual transactions are more likely to be recorded in error than recurring or routine transactions are d. If misstatements are likely to occur in the recording process, the auditor should develop procedures to detect misstatements.arrow_forward(A) The requirement is to find the best statement concerning an auditor’s assessment of control risk. Answer (A) is correct because assessing control risk may be performed concurrently during an audit with obtaining an understanding of internal control. Answer (B) is incorrect because evidence about the operation of internal control from prior audits is useful in planning and executing the current year’s assessment of control risk. Answer (C) is incorrect because the basis for an auditor’s conclusions about the level of control risk must be documented when at any time control risk is assessed below maximum. Answer (D) is incorrect because a lower level of control risk requires more assurance, not less, that the controls are operating effectively.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
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