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 6TFQ
To determine
Introduction: Inherent risks are the risks which are posed due to factors other than internal control. In certain situations when there are complex transactions or there are transactions which require high level of judgment in estimation, there are chances of errors and omissions. Hence, there is a direct effect of competence and integrity of management in misstatement of financial statements.
To choose:Whether the statement is true or false
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The risk that a client's financial statements are susceptible to material misstatements is
a. control risk
b. inherent risk
c. audit risk
d. none of the above
Which 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 risk
Do you think the concept of materiality is incompatible with ethical behavior? Consider in your answer how materiality judgments affect risk assessment in an audit of financial statements.
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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- Something is deemed to be 'material' if its omission, non-disclosure or misstatement is likely to affect economic decisions or other evaluations made by users entitled to rely on the financial statements. Select one alternative: True Falsearrow_forwardAssertions with high inherent risk are least likely to involve a. complex calculations b. difficult accounting issues c,. routine transactions d. sigifican judgement by managementarrow_forwardInformation is immaterial if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. True Falsearrow_forward
- Whether the act of overstating in revenue is considered and classified to be asignificant risk. Does this risk can be charged with governance?arrow_forwardTRUE OR FALSE Financial sector creates products for the management of risk, thus risk can be abolished fully.arrow_forwardHow can we reduce this risk in financial reporting process? "Are redundant and out-of-date information flows identified and terminated?"arrow_forward
- The risk to investors that a company’s financial statements may be materially misleading is calleda. Client acceptance risk.b. Information risk.c. Moral hazard.d. Business risk.arrow_forwardWhich of the following is the best description of reliability in relation to information in financial statements? Comprehensibility to users Influence on the economic decisions Freedom from material error and bias Inclusion of degree of caution of usersarrow_forwardExplain the problems of adverse selection and moral hazard caused by asymmetricinformation. How can financial intermediaries alleviate those problems?arrow_forward
- Which of the following does NOT describe substantive procedures? O includes inspection, inquiry, and confirmation O also known as substantive testing or tests of details O influenced by the overall risk assessment O designed to obtain indirect evidence of information included in the financial statementsarrow_forwardWhich of the following situations violates the concept of reliability? Relevance is the capacity of information to make difference in decision by helping users from predictions about outcome of past, present and future events, or confirm/correct prior expectations The quality of reliability assures readers that the financial information is free from bias and faithfully represents what it purports to show, including adequate disclosure of significant information Under the IASB Framework for the Preparation and presentation of financial statements, conservatism is not a concept that is recognized as a qualitative objective I and II only II and III only I and III only I, II and IIIarrow_forwardWhy is the risk that the auditor might make a mistake in expressing a modified opinion on financial statements, which are in reality, free from material misstatements and are fairly presented considered a business risk?arrow_forward
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