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 8TFQ
To determine
Introduction: Control risk is a risk that there is a possibility of material misstatement of financial statements due to poor internal check and
1) Lack of expertise to deal with changes in the industry
2) Existence of significant supply chain risks
3) The maturity stage of industry
4)Legal exposure
To choose:Whether the statement is true or false
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Students have asked these similar questions
Which of the following are indicators of a high-risk or low-risk profile client? Explain?
Poor recent or forecast performance
Significant control weaknesses
Well-financed
Conservative, prudent accounting policies
Competent, honest management
Significant unexplained transactions or transactions with connected companies
Why do you think that inherent and control risk is responsible for the audited company(client) and detection risk belongs to auditors?
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.
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.
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
- 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 riskarrow_forwardWhich 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..arrow_forwardAs IT auditors, it's critical that we establish a common "risk" language with management. Importantly, this common language should consider: a) How an IT risk may impact the organization's ability to generate revenue. b) How an IT risk may impact the customer experience. c) How an IT risk may impact the expenses and costs incurred by the organization, such as privacy legal fines for non-compliance. d) All of the abovearrow_forward
- Companies of all sizes try to reduce business risks, create disaster recovery plans, and also purchase insurance for what they cannot completely control. Therefore, the business risk is the risk that: Select one: a.The auditor will give an inappropriate auditor’s opinion when the financial report is materially misstated b.The entity’s business objectives will not be attained due to the external and internal environment affecting the entity and the industry in which it operates. c. An error will occur given the environmental characteristics of the account balance. d.The auditor will be exposed to loss to their professional practice from litigation or adverse publicity arising in connection with an audit.arrow_forwardWhy is there a need on the part of the client entity to monitor internal controls over time? a. Because the auditor needs to obtain understanding of internal control b. Because unmonitored controls tend to deteriorate over time c. Because it will affect the timing of substantive audit procedures d. Because it is a requirement of the applicable financial reporting frameworkarrow_forwardAn auditor's preliminary control risk assessment is at a high level. Which of the following are possible reasons for this preliminary assessment? 1. The entity's internal control system is not effective. 2. Evaluating the effectiveness of the entity's control system would not be efficient. Choices: a. I only b. II only c. Both I and II d. Neither I and IIarrow_forward
- Some auditors claim that increased exposure under creates a litigation environment that is unfairly risky for auditors. Do you think that the inability of auditors to detect a financial statement misstatement due to gross deficiencies in internal controls over financial reporting should expose auditors to litigation? Why or why not? Include reference to appropriate ethical standards in your response.arrow_forwardMany auditors assert that certain audit tests can be significantlyreduced for clients with adequate perpetual records that include both unit and cost data.What are the most important tests of the perpetual records that the auditor must makebefore reducing assessed control risk? Assuming the perpetuals are determined to beaccurate, which tests can be reduced?arrow_forwardWhich of the following statements are correct? Select which option is correct. Select one or more: A. The level of professional skepticism can be reduced where the auditor has past experience with the entity indicating the honesty and integrity of management. B. Professional skepticism implies an expectation of fraud or error, so is a biased viewpoint. C. The level of professional skepticism needs to be maintained throughout the whole engagement. D. Professional skepticism is not important in considering management's explanations for unusual trendsarrow_forward
- An auditor’s preliminary control risk assessment is at a high level. Which of the following are possible reasons for this preliminary assessment? The entity’s internal control system is not effective. Evaluating the effectiveness of the entity’s control system would not be efficient. Group of answer choices A. I only B. Neither I and II C. Both I and II D. II onlyarrow_forwardTRUE OR FALSE1. WHEN OBTAINING AN UNDERSTANDING OF CONTROL ACTIVITIES OF A RELATIVELY SMALL CLIENT, THE AUDITOR IDENTIFIED NO CONTROL ACTIVITIES, THE AUDITOR WOULD PROBABLY SET A HIGH ASSESSMENT OF CONTROL RISK2. WHEN A COMPANY DESIGNS AND IMPLEMENTS INTERNAL CONTROLS, COST OF THE CONTROLS IS NOT A VALID CONSIDERATION.3. AUDITING STANDARDS PROHIBIT RELIANCE ON THE WORK OF INTERNAL AUDITORS DUE TO THE LACK OF INDEPENDENCE OF THE INTERNAL AUDITORSarrow_forwardAuditors have two strategies to choose from, the lower-assessed control risk strategy and the predominantly substantive strategy. Which of the following statements about the two audit strategies is incorrect? A. If the client’s internal controls appear to be effective, the auditor must use the lower assessed control risk strategy. B. When internal controls are effective in preventing errors in the financial statement, auditors can use the lower-assessed control risk strategy. C. Auditors can always choose to use the predominantly substantive strategy regardless of the control risk assessment. D. When internal controls are not effective in preventing errors in the financial statement, auditors need to use the predominantly substantive strategy. E. Compared to the predominantly substantive strategy, the lower-assessed control risk strategy is more cost-efficient.arrow_forward
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