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Audit HW3 (3.3, 3.6, 3.7, 8.1, 8.2)
Terms in this set (36)
After obtaining an understanding of internal control, an auditor of a nonissuer's financial statements may place no reliance on controls for some assertions because the auditor
Identifies controls that are likely to prevent material misstatements.
When planning an audit, an auditor should
Determine materiality for the financial statements as a whole.
The existence of audit risk is recognized by the statement in the auditor's report that the
Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement.
Which of the following statements is correct concerning an auditor's responsibility to report fraud?
The disclosure of fraudulent activities to parties other than the client's senior management and its audit committee is not ordinarily part of the auditor's responsibility.
An auditor of a nonissuer should design tests of details to ensure that sufficient audit evidence supports which of the following?
The planned level of assurance at the relevant assertion level.
The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is
An auditor who decides not to rely on controls should
Document the further audit procedures performed.
Which of the following types of risks most likely would increase if accounts receivable are confirmed 3 months before year end?
Which of the following is least likely to indicate the need to increase the assurance provided by substantive testing?
A decrease in the assessed inherent risk.
Under the Private Securities Litigation Reform Act of 1995, Baker, CPA, reported certain noncompliance with laws and regulations to Supermart's board of directors. Baker believed that failure to take remedial action would warrant a qualified audit opinion because the noncompliance had a material effect on Supermart's financial statements. Supermart failed to take appropriate remedial action, and the board of directors refused to inform the SEC that it had received such notification from Baker. Under these circumstances, Baker is required to
Deliver a report concerning the noncompliance to the SEC within 1 business day.
The portion of the audit plan for a financial statement audit that describes further audit procedures usually cannot be developed until the
Understanding of the entity's internal control has been completed.
An auditor uses the assessed risks of material misstatement to
Determine the acceptable level of detection risk for financial statement assertions.
Which of the following information that comes to an auditor's attention most likely would raise a question about noncompliance with laws and regulations?
The discovery of unexplained payments made to government employees.
The ultimate purpose of assessing control risk in a financial statement audit is to contribute to the auditor's evaluation of the risk that
Material misstatements may exist in the financial statements.
Which of the following is a false statement about materiality?
An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.
Which of the following procedures is considered a test of controls?
An auditor interviews and observes appropriate personnel to determine segregation of duties.
After obtaining an understanding of internal control in a financial statement audit, an auditor has concluded that it is well designed and is operating effectively. Under these circumstances, the auditor would most likely
Not increase the extent of substantive procedures.
Which of the following courses of action is the most appropriate if an auditor concludes that there is a high risk of material misstatement?
Select more effective substantive procedures.
Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatement arising from fraudulent financial reporting?
Management had frequent disputes with the auditor on accounting matters.
Which of the following circumstances would an auditor most likely consider a risk factor relating to misstatements arising from fraudulent financial reporting?
Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices.
Management's emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when
A significant portion of management compensation is represented by stock options.
Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely will significantly increase opportunities for fraudulent financial reporting when
Management is dominated by one individual who is also a shareholder.
If an auditor wishes to decrease the acceptable level of audit risk, which of the following changes in the substantive procedures performed will not effectively provide greater assurance?
A change in the timing of substantive procedures from year-end to interim dates.
The acceptable level of detection risk is inversely related to the
Assurance provided by substantive procedures.
Which of the following factors is most important concerning an auditor's responsibility for considering fraud?
The risk that the financial statements are not fairly presented in all material respects, in accordance with the applicable reporting framework.
Which of the following situations most likely represents the highest risk of a misstatement arising from misappropriations of assets?
A large number of bearer bonds on hand.
As the acceptable level of audit risk decreases, an auditor may
Postpone the planned timing of substantive tests from interim dates to the year end.
Which of the following circumstances most likely would cause an auditor to suspect that there are material misstatements in an entity's financial statements?
Supporting accounting records and files that should be readily available are not produced promptly when requested.
Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?
An overly complex organizational structure involving unusual lines of authority.
Samples to test controls are intended to provide a basis for an auditor to conclude whether
The controls are operating effectively.
When an auditor becomes aware of a possible act of noncompliance with laws or regulations, the auditor should obtain an understanding of the nature of the act to
Evaluate the effect on the financial statements.
While performing interim audit procedures on accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate?
Use more experienced audit team members to perform year-end testing.
Which of the following procedures will an auditor most likely perform when evaluating audit evidence at the completion of the audit?
Consider whether the results of audit procedures affect the assessment of the identified risks of material misstatement due to fraud.
Which of the following matters relating to an entity's operations would an auditor most likely consider as an inherent risk factor in planning an audit?
The entity enters into derivative transactions as hedges.
After testing a client's internal control activities, an auditor discovers a number of significant deficiencies in the operation of a client's internal controls. Under these circumstances, the auditor most likely would
Increase the assessment of control risk and increase the extent of substantive tests.
Which of the following parties should an auditor notify first when discovering an immaterial fraud is committed by an accounting clerk?
An appropriate level of management.
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