ACCT 486 Exam 1 Chapter 1-4

professional managers hired by owners to run the corporation on a day to day basis are know as ____
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Which of the following is a type of attest serviceauditingThese are implemented to ensure that the clients information system appropriately captures and records individual transactions, which are then collected into ending account balancesInternal controlsTo increase the likelihood that a sample is representative of the population of transactions or account items, auditors use _________ sampling proceduresRandomThe end product of an auditor's work is the _______Auditors opinionEntities must design and implement __________ to ensure that transactions are initiated, captured, recorded, and summarized appropriately in the entity's accounting systemControlsDesigning procedures to test whether in entities internal control over financial transactions is effective, allows the auditor to obtain _______ information regarding whether account balances are fairly statedIndirectAn important preliminary engagement activity is to ensure the ________ of the audit firm and audit teamIndependenceTrue or false: before excepting a new audit client, the auditor is required to conduct a background check on top managementFalseThe assessment of internal controls _________Will be in greater depth for a public company clientUsually the highest quality audit evidence __________Relates directly to ending account balancesOn most financial statement audits, the majority of time is spent _________conducting planned audit testsIn order to plan the audit properly, the audit team must make a preliminary assessment of the clients __________ risks and determine _________Business, materialityAuditors usually organize audits by grouping financial statement accounts according to the _______business processes that primarily affect those accountsTo ensure the audit is conducted effectively and efficiently it is important to _________properly plan the auditThe most common type of audit report issued by auditors is a(n) __________ opinionUnqualifiedA lawsuit in progress against a company is an example of a(n) ___________ ________ that needs to be considered when completing an auditcontingent liabilityThe final phase in the audit process is to _________evaluate the results and issue an audit reportThe scope paragraph for a public company refers to ________Standards of the PCAOBTrue or false: most audit opinions are qualified because it is common for auditors to find Misstatements that need correctionsFalseIf a misstatement is considered so material that it pervasively affects the interpretation of the financial statements, the auditor will issue a(n) __________ opinion indicating that the financial statements are not fairly stated and should not be relied uponAdverseThe basis for opinion section of the audit report emphasizes the fact that the audit provides only ____________ _____________that the financial statements contain no material misstatement, whether due to error or fraudReasonable assuranceWhen the financial statements are free of material misstatement and the auditor does not find it necessary to specify any exceptions to a clean audit opinion, the audit report issued is _________unqualifiedThe opinion section of the audit report contains the phrase in all " ___________ __________ " emphasizing the auditor is only responsible for detecting misstatements large enough to affect the decisions of a reasonable financial statement userMaterial respectsWhat paragraph of the audit report expresses the auditors judgment that the audit provides a reasonable basis for the opinion to be expressed?scopeEnhanced transparency of transactions, increasing operating efficiency, and greater reliability of data and data trails are all results of the use of ___________ technologyBlockchainThe use of decentralized, distributed digital ledgers that record economic transactions is allowed by __________ technologyblockchainWhen an auditor reports that the financial statements are fairly stated except for a misstatement identified in the inventory account, a(n) __________ opinion should be issuedQualifiedPut the following components of the standard auditors report in the correct order Auditors responsibility, opinion, title, managements responsibility for the financial statements, introductionTitle, introduction, managements responsibility for the financial statements, auditors responsibility, opinion__________ is (are) responsible for the financial statementsmanagementThe auditors report is the __________ of an auditEnd productAn auditor's report includes an introduction, the auditors and managements responsibility, and a(n) __________OpinionAn opinion indicates that the financial statements are presented __________fairlyAn audit report indicates that the audit evidence we have obtained is __________ to provide a basis for the opinionsufficientRead the stages of an audit listed below and put them in the correct order Form an audit opinion and issue the audit report, plan the audit, assess the risk of misstatement and design further audit procedures, complete the audit, obtain an understanding of the client and its environment including internal control, perform further audit proceduresPlan the audit, obtain an understanding of the client and its environment including internal control, assess the risk of misstatement and design further audit procedure, perform further audit procedures, complete the audit, form an opinion and issue the audit reportAudit _________ begins with determining the requirements for the engagementplanning__________ assessment procedures are performed when obtaining an understanding of the clientrisk__________ risk is the risk of material misstatement of an assertion without considering internal controlinherentTests of controls are performed to determine whether key controls operate __________effectivelyThe final step of an audit is issuing the audit _______reportAn independent audit adds value to the communication of financial information because the audit:lends credibility to the financial statementsWhich of the following best describes the reason why an independent auditor is often retained to report on financial statementsDifferent interests may exist between the entity preparing the statements and the persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements.Which of the following best describes the relationship among auditing, attest, and insurance servicesAuditing is a type of assurance serviceWhich of the following statements relating to attest and assurance services is not correctFinancial statement auditing is a form of attest service but it is not an assurance service.For what primary purpose does the auditor obtain an understanding of the entity and it's environmentTo plan the audit and determine the nature, timing, and extent of audit procedures to be performedWhich of the following statements best describes the role of materiality in a financial statement auditThe lower the level at which the auditor assesses materiality, the greater the amount of evidence the auditor must gather.Which of the following is the most important reason for an auditor to gain an understanding of an audit clients system of internal control over financial reportingUnderstanding a client's system of internal control can help the auditor assess risk and identify areas where financial statement misstatements might be more likely.Preliminary engagement activities include:Understanding the client and the clients industry, determining audit engagement team requirements, ensuring the independence of the audit team and audit firmWhich of the following statements best describes what is meant by an unqualified audit opinionIssuance of a standard unqualified auditor's report indicates that in the auditor's opinion the client's financial statements are fairly presented in accordance with agreed-upon criteria, with no need for the inclusion of qualifying phrases.The auditing standards that are used to guide the conduct of the audit are:Explicitly referred to in the basis for opinion section of the auditor's standard report.A client has used an inappropriate method of accounting for its pension liability on the balance sheet. The resulting mistreatment is material, but the auditor does not consider it's a fact to be pervasive. The outer is unable to convince the client to alter its accounting treatment. The rest of the financial statements are fairly stated in the auditors opinion. Which kind of audit report with an auditor most likely issue under these circumstancesQualified opinion due to departure from GAAPWhich of the following provides the best definition of audit evidencethe underlying accounting data and any additional information available to the auditor, whether originating from the client or externallyWhich of the following best describes the relationship between evidence and the assertions/audit opinionAudit evidence helps the auditor determine whether management's assertions are being met.What characteristics of evidence should an auditor be concerned with when searching for and evaluating audit evidencerelevance and reliabilityWhich of the following best describes the relationship between attestation services and audit servicesAuditing is a subset of attestation that involves the issuance of an opinion regarding the fairness of financial statements.The fact that errors and/or omissions in certain relatively insignificant account balances would not affect an auditors decision when reporting on the financial statements as a whole relates most closely to which major audit conceptMaterialityWhich of the following best describes the primary reason and independent auditor reports on financial statementsTo add credibility, where appropriate, since management may not be perceived as objective with respect to its own financial statementWhich of the following audit phases would generally be conducting before all of the others listed belowGaining an understanding of the auditee's industryInsurance services differ from auditing services in that:Insurance services may include a report about the relevance and timeliness, not just the reliability, of the informationAudit evidence:Can we gathered from many sources and is not limited to the underlying accounting dataGaining an understanding of the oddity and its environment includes all of the following areas exceptThe audit fee and timeline for completion of workIndependent auditing can be described asA discipline that provides assurance regarding the results of accounting and other functional operations and dataAn auditors evaluation of the reasonableness of a companies loan loss Reserve would normally be made during which phase of the audit?Auditing business processes and related accountsThe examination of an entities transactions would make an audit very costly. Thus, auditors rely heavily on sampling as a way to obtain evidence. Which of the following would result in a smaller sampleA decrease in the desired level of assuranceInformation asymmetry:Refers to an imbalance of information between stockholders and the management of a companyFinancial statement users demand for insurance is similar to that of a potential home buyer who hires a home inspector in thatThere are often information asymmetry and conflicts of interestAudit risk:Is the risk that a "clean "opinion will be issued when, in reality, the financial statements are materially misstatedThe study and practice of auditing is unlike other areas in accounting because itRequires common sense imagination and innovation.The most favorable type of audit opinion for an entity to receive isunqualifiedIndependent auditors are also called ________ auditorsexternalTo sign an audit opinion on an entities financial statements in the United States, an external auditor must be a(n) _________ __________accountantCertified publicAn independent, objective assurance and consulting activity design to add value and improve in organizations operations is the definition of ________ auditingInternalAuditors specially trained in detecting, investigating, and deterring fraud and white collar crime or called _________ auditorsForensicAn audit of internal controls is _______ for private entitiesAvailable but not requiredFinancial statements for publicly traded and private companies, partnerships, municipalities, individuals, and other types of entities are audited by _________ or _________ auditorsexternal, independentThe purpose of a(n) _________ audit is to assess performance, identify areas for improvement, and develop recommendations.operationalReconstructing incomplete or damaged accounting records and probing money laundering activities are examples of situation is that often involves _________ auditorsForensicAuditing and a test station or specialized forms of the general category of ___________ servicesAssuranceThe SOX act of 2002 required public companies to engage an external auditor to provide an opinion on the effectiveness of ________ _________Internal controlsThe Sarbanes-Oxley act prohibits external auditors from _[_____Providing many types of consulting work for its auditing clientsAn entity hiring auditors to assess the efficiency and effectiveness of its use of IT resources is an example of a(n) ________ auditOperationalTrue or false: CPAs can offer a variety of services that provide assurance but are not considered auditing or attestationTrueAn attitude that includes a questioning mind and a critical assessment of audit evidence is the definition of ________ ___________Professional skepticismWhich act prohibits external auditors from providing many forms of non-audit services and consulting work to public companies for which the auditor also provides a financial statement auditSarbanes-Oxley Act of 2002The Sarbanes-Oxley act effectively transferred authority to set and enforce auditing standards for a public company audit to the _________Public company accounting oversight boardTrue or false: if an auditor fails to exercise do a professional care, he or she can be held liable for civil damages or even criminal penaltiesTrueThe contacts provided by the entities business ________ the auditor and the nature of the auditGreatly impactsThe body that is primarily responsible for management oversight in the US corporations is _________board of directorsOrganizations design and implement ___________ _____________ systems to capture the details of transactions involved in each business processAccounting informationTrue or false: the contacts provided by the entities business is a primary aspect of the environment in which financial statement auditing is conductedTrueAll the people, processes, and activities in place to help ensure proper stewardship over and entities assets is the definition of ________ __________Corporate governanceBusiness organizations hire personnel to perform various functions in accordance with the enterprises mission and strategy in the _________ processHuman resource managementThe main transaction in the human resource management process that affects the financial statement is a(n) _________ transactionPayrollThe _________ process varies widely between different types of businessesInventory managementWhich act regulates ongoing reporting by companies whose company's securities are listed and traded on the stock exchange or that possess assets greater than $10 million and it's equity securities are held by 500 or more persons?Securities exchange act of 1934To deter possible recurrence of rule violations and to enhance the quality and reliability of future audit, the __________ can impose sanctions on the registered firmsPublic company accounting oversight board (PCAOB)When a significant event occurs that may be of interest to investors, the SEC requires a publicly traded company to file a(n) ___________8kA privately funded body whose mission is to establish standards for financial accounting and reporting is known by the initials ________FASBWhich of the following statements regarding accounting firms and auditing standards is correct?The ASB establishes standards for nonpublic entities and the PCAOB establishes standards for SEC registrants.According to "principles underlying an audit quote, an auditor must avoid actions or relationships that appear to affect _______IndependenceThe most important function of the __________ is the promulgation of rules and standards that guide audit and related services provided to non-public companies, government, and other entitiesAmerican Institute of certified public accountants (AICPA)Which group was established within the FASB to meet accountants needs for timely guidance on accounting practices in methods?Emerging Issues Task Force (EITF)True or false: accounting firms that audit the financial statements of non-public entities in the United States are required to comply with the auditing standards established by the PCAOBFalseIn the performance section, ________ refers to what procedures are performed, _________ refers to win the audit work is done, and _________ refers to how much work is doneNature, timing, extentA system or code of conduct based on moral duties and obligations that indicate how we should behave is referred to as ______ethicsUnderstanding areas of weakness in an entities internal controls helps the auditor ________Focus on areas where misstatements are likely to occurThe major portion of the AICPAs code of professional conduct identifies actions that may impair auditors ________IndependenceWhich of the following is not a part of the role of internal auditor'sProviding reports on the reliability of financial statements to investors and creditorsOperational auditing is oriented primarily towards:efficiency and future improvements to accomplish the goals of management.Which of the following would be considered a nonattest assurance service engagement? 1. Expressing an opinion about the reliability of an entity's financial statements 2. Reporting that accompanies sustainability metrics are complete and accurateNeither one or twoWhich of the following best place is the events of the last decade in proper sequence?Increased consulting services to auditees, Enron and other scandals, Sarbanes-Oxley act, prohibition of most consulting work for auditees, establishment of PCAOBWhich of the following statements best describes management and the external auditors respective levels of responsibility for a public company's financial statementsManagement has the primary responsibility to ensure that the company's financial statements are prepared in accordance with GAAP, and the auditor provides a reasonable assurance that the statements are free of material misstatementWhich of the following best describes the relationship between business objectives, strategies, processes, controls, and transactionsTo achieve its objectives, a business formulates strategies and implements processes, which are carried out through business transactions. The entity's information and internal control systems must be designed to ensure that the transactions are properly executed, captured, and processed.The public company accounting oversight board:Is a quasi-governmental organization that has legal authority to set auditing standards for audits of public companies.Which of the following best describes the general character of the section of the "principles underlying an audit of financial statements," titled "performance"?Criteria for audit planning an evidence gatheringMost large corporations typically have a large group of ________internal auditorsHeaded by the Auditor General, the work of __________ includes compliance, operational, and financial audits.governmental auditors_________ perform compliance audit of income tax returns of individuals and corporations to determine that income has been computed and taxes paid as requiredIRS auditors__________ are the only auditors that work for the company that they are auditingInternal auditor's___________ are required to be public accountantExternal auditorsThe responsibility for implementing sound accounting practices and principles, maintaining an adequate internal controls structure, and making fair representation in the financial statements rest primarily with theSenior managementWhich of the following best describes the relationship between management in the board of directors?Management reports to the board of directors.The principles underlying an audit conducted in accordance with GAAS has developed by the ASB and the IAASB include all of the following exceptThe auditors should plan and conduct the audit to obtain assurance that the financial statements are free of any misstatementWhich of the following primarily shapes the context in which auditing takes placeLegislation passed by CongressWhich of the following best describes the rules of the American Institute of certified public accountant (AICPA) and the public company accounting oversight board (PCAOB) in establishing auditing standardsAll of the aboveAnd "integrated audit "includesA financial statement audit and an audit of internal control over financial reporting"Mid-tier" firmsAre national in their practices and have international affiliatesWhich of the following organizations affect the environment that CPAs work inAll of the aboveWhich of the following is not a typical responsibility for an associate/staff level auditorAssisting in the development of the audit plan.Prior to the Sarbanes-Oxley active 2002, the _________ was responsible for creating all new auditing standards in the United States. Today, for publicly health companies, that responsibility rests with the ___________AICPA auditing standards board (ASB), public company accounting oversight board (PCAOB)Which of the following is generally not considered one of the five business processes or cycles?information technologyWhat is the essential meaning of the auditor being independent in fact?The auditor must be objective.Which of the following is considered an example of a compliance audit?The examination of a company's adherence to government-mandated safety provisions.The public company accounting oversight board (PCAOB) derives its authority to sit and in force auditing standards for public company audits fromAn act of congressTo exercise due professional care, an auditor shouldExamine all available corroborating evidence supporting management's assertions.True or false: the extent of effort that goes into evaluating a new client is normally much less than the decision to continue with an existing clientFalseThe first phase of the audit process that relates to audit planning isclient acceptance and continuanceWhich of the following is not a factor that auditors should consider when evaluating the reliability of the internal audit function?compositionEnsuring that members of the audit team meet independence requirements generally takes place as part ofPreliminary engagement activitiesTrue or false: the audit team a public accounting firm uses for an engagement does not tend to vary from client to clientFalseMany public accounting firms adopt a policy of not completing the current audit until _________ fees have been paidall of the prior year'sAuditors should establish an understanding with the entity about the terms of the engagement toReduce the risk of misinterpretation between the two partiesInformation about an auditor's financial our business relationships with the firms client is documented by having all personnel complete an annual ______________ ____________Independence questionnaireWhich of the following is not a factor that auditors should consider when evaluating the reliability of the internal audit functioncompositionAuditors can reduce audit risk to an acceptably low level byobtaining an understanding of the entity and its environmentIdeally, the head of internal auditing (CAE) shouldReport functionally to the audit committee and administratively to senior managementThe amount of overall materiality used to plan and perform audit procedures at the account or disclosure level is called _________ ___________tolerable misstatementOnce the audit strategy has been established, the auditor develops a more detailed__________ _________Audit planBased on an understanding of the entity and environment, the auditor identifies those ___________ risks that may result in material MisstatementsbusinessWhen should the audit committee meet with external auditors to discuss the auditors responsibilities and significant accounting policies?Before the engagement startsAuditors consider materiality from a reasonable user perspective and communicate to users that "the financial statements present fairly in _____ material respects "AllWhen a client has multiple locations, the auditor determines which locations our business units to audit and the extent of audit procedures to be performed during the ___________ processPlanningAn individual or organization possessing expertise in a field other than accounting or auditing whose work is used to assist the auditor in obtaining sufficient, appropriate evidence is defined by auditing standards as a(n) ___________ ____________Auditor specialistTrue or false: in some cases, fraud may consist of a legal actsTrueAuditees should consider laws and regulations that are generally recognized as having ____________ effects on the determination of financial statement amountsDirect and materialThe consideration of materiality is a matter ofProfessional judgmentAn auditor who receives evidence concerning material but indirect illegal acts shoulduse audit procedures to determine whether the illegal acts have occurredWhen auditing a company with multiple locations, the amount of audit attention devoted to various locations depends upon theRisk of material misstatementA significant aspect of most audit engagements is the use of a(n) __________ specialistITViolations of laws or regulations are referred to as ________ __________Illegal actsIf the entities management does not provide satisfactory information about possible illegal acts, the auditor should consult with theEntities legal counselAuditors responsibility for detecting illegal acts having a direct and material effect on the financial statements is the same as that for __________ and _________Errors, fraudAuditing standard provide ____________ assurance that illegal acts will be detected in that any contingent liability that may result will be disclosedNoAuditors should attempt to identify all related parties during the _________ phase of the auditPlanningAuditing standards distinguish between illegal acts that have __________ and material effects on the financial statements and those that have material but __________ effectsDirect, indirectAuditors should attempt to identify all ________ _________ because transactions with them may not be at "arm's-length"Illegal actsOverall responsibility for an audit engagement rests with theEngagement partnerAuditor risk assessment procedures are used to _______obtain an understanding of the entity and its environmentAuditors should attempt to identify all related parties during the _________ phase of the auditPlanningTests of controls are performed to _______test the operating effectiveness of the controls.Materiality is assessed in terms of potential effect of a mess statement on decisions made by _______A reasonable user of financial statementsTrue or false: if current year pretax income is not stable, auditors should not based materiality on an income measureFalseIn practice, auditors commonly set tolerable misstatement for each account at _______between 50% and 75% of overall materialityWhen the aggregated Misstatements are less than the overall materiality, the auditor can conclude that the financial statements are presented ________fairlyWhen an entity operates in a highly regulated industry, the auditor would choose a ___________ percentage in deciding the appropriate percentage to apply to a selected materiality benchmarklowerWhen the aggregated misstatement are greater than overall materiality the auditor should ______ask the entity to adjust the financial statementsIf a company has income before taxes of $15 million and the auditor decides that 7% of that amount would be material, what would be the overall materiality for the audit engagement$1,000,500Successor auditors need to communicate with predecessor auditors ________ excepting the engagementBefore____________ must ask management to authorize the predecessor auditors to discuss confidential informationSuccessor auditorsIf predecessor auditors refuse communication, successor auditors _________ accept the engagementcanCommunication between predecessor and successor auditors aids in evaluating the __________ of managementintegrityShopping for accounting principles is ___________ by Sarbanes-OxleydiscouragedWhich of the following best describes an audit committeeAn audit committee is a subcommittee of the board of directors that is responsible for the financial reporting and disclosure process.Which of the following best describes why audit committees are formed?Audit committees are formed to satisfy the shareholders' need for assurance that directors are exercising due care in the performance of their duties.Which of the following statement(s) is/are correct regarding the implications of this situation if these events occurred in the seventh year after the signing of the audit decreeIf the facility cannot be completed on time and the penalties Under the consent decree or significant enough to raise doubts about the companies continued existence, the auditor would likely issue a modified report with an explanatory paragraph for going concernBefore excepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor'sUnderstanding as to the reason for the change of auditorsA written understanding between the auditor and the entity concerning the auditors responsibility for fraud is usually set forth in a(n)engagement letterIf the independent auditors decide that it is efficient to consider how the work performed by the internal auditors me affect the nature, timing, and extent of audit procedures, they should assess the internal auditors':Competence and objectivityDuring the initial planning phase of an audit, a CPA most likely would:Discuss the timing of the audit procedures with the entities management.As generally conceived, the audit committee of a publicly held company should be made up of:Members of the board of directors who are not officers or employees.When planning an audit, and auditor should:Determine overall materiality for audit purposesWhich of these statements concerning illegal acts by clients is correct?An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and fraud.The engagement partner and manager review the work of engagement team members to evaluate which of the followingall of the aboveTolerable misstatement is:materiality used to establish a scope for the audit procedures for the individual account balance or disclosures.Which of the following would an auditor most likely use in determining overall materiality when planning the audit?The entity's income before taxes for the period-to-date (e.g., 6 months).For which laws and regulations does the auditor have the same responsibility as that for errors and fraud?Laws and regulations that have a direct and material effect on the financial statements.A dual-purpose test isA procedure that serves as both a test of control and a substantive test of transactionsThe audit committee of a company which is responsible for the appointment of the independent audit firm should consist ofMembers of the board of directors who are not officers or employees.According to the text, the first step in applying materiality to an audit isTo determine a materiality level for the overall financial statements.When establishing an understanding with the entity regarding the terms of the engagement, all of the following should be discussed, except:The agreed upon limits on auditor liability for an improper audit.The preliminary engagement activities include all of the following exceptEnsure that there is an independent audit committee.Which of the following statements best represents the reason why auditors were prepare engagement letters to be signed by their auditees?They communicate and clarify the expectations and responsibilities of both the auditee and the auditorWhich of the following statements is correct with regard to the predecessor-successor communicationsThe successor auditor should obtain permission from the entity before contacting the predecessor auditor.Which of the following factors would most likely cause a CPA to decide not to except a new audit engagement?Management refusal to permit the CPA to perform substantive tests before the year endWhen likely miss statements are greater than overall materiality, the auditor shouldRequest that the auditee adjust the financial statements, and modify the opinion if the auditee will not adjust the financial statementsWhich of the following would not be a typical supervisory activity for an audit?Perform detailed testing of the accounts payable account.Which of the following would most likely indicate the existence of related parties?Borrowing money at an interest rate substantially below the prevailing market rate of interest.The concept of materiality as it applies to a financial statement auditIs determined, in part, based on how financial statement users may be influenced in making decisions.Which of the following factors would be of least important to an auditor in determining how much reliance can be placed on the work of internal auditor's?The nature of the audit software documentation used by the internal auditorTests of controls include all of the following except:analytical proceduresThe possibility that an auditor will issue an unqualified opinion on materially misstated financial statements is called __________ _________Audit riskThe risk that the auditor will not discover a material misstatement in the financial statements is known as __________ riskdetectionThe susceptibility of a material account or disclosure assertion to a Misstatement due to fraud or error, before considerations of any related controls is _________ riskinherentThe risk that immaterial account or disclosure assertion will not be prevented, detected or corrected on a timely basis by the entities internal control is ________ riskControlThe combination of inherent risk and control risk is referred to in auditing standards as the risk of ________ __________material misstatementAuditors should perform audits to reduce __________ risk to a sufficiently low level before expressing an opinion on the financial statementsAuditThe risk that the procedures performed by the auditor to reduce risk to an acceptable a low level will not detect a Misstatement that exists is known as __________ riskDetectionAt the assertion level, audit risk consists of _______ risk, ________ risk, and _________ riskInherent, control, detectionIf the auditor assesses the _________ level of audit risk as being less than or equal to the _________ level of audit risk, and unqualified report can be issuedActual, plannedThe susceptibility of an assertion in an account or disclosure to a misstatement due to error or fraud that could be material is known as ________ riskinherentThe formula auditors used to determine the appropriate level of detection risk isDR = AR / RMMThe risk that a Misstatement could occur in an assertion and would not be prevented, detected and correct it on a timely basis by the entities internal control is known as ________ riskControlThreats from significant events that could adversely affect an entity's ability to achieve its objectives and execute its strategies are _______ ________Business risksThe risk of material misstatement is also referred to as _________ risk because it stems from decisions made by an entityClientThe effectiveness of the auto procedures and how well the procedures are applied by the auditor determines the ________ riskDetectionThe auditors should develop expectation about plausible relationships that are expected to exist when performing preliminary _________ __________Analytical proceduresTrue or false: at the completion of the audit, the actual or achieved level of audit risk is known with certainty by the auditorFalseWho address his business risks by implementing a risk assessment process?ManagementThe risk of material misstatement refers to misstatements caused by ________ or ________errors, fraudThe combination of inherent risk and control risk is referred to in auditing standards as the risk ofmaterial misstatementEvaluation of financial information made through the study of plausible relationships among both financial and non-financial data are referred to asAnalytical proceduresTrue or false: observation and inspection audit procedures should be limited to current activities performed inside the organization without considering outside sourcesFalseAuditors assess the risk of material misstatement at the ________ levelassertionInternal performance measures include ______.both financial and nonfinancial indicatorsThe auditor should obtain information about the conduct of operations, joint ventures, planned acquisitions, and major subsidiaries as part of learning about theNature of the entityThe primary distinction between a ________ and ________ is whether the misstatement was intentional or unintentionalerrors, fraudMisstatements about which there is no doubt are called _________ MisstatementsfactualUnintentional Misstatements of amounts or disclosures and financial statements are referred to aserrorsWhen an auditor considers management selection of an accounting policy to be inappropriate, a(n) __________ misstatement arisesJudgementalAn auditor tests an invoice for services provided and determined that the amount charged is incorrect. This is an example of a ________ MisstatementFactualIncentive, opportunity and rationalization or three conditions that are sometimes referred to as the ________ ________ triangleFraud riskAn auditor determines that the percentage of allowance for bad debts set by management is unreasonably low based on past experience. This is an example of a _________ misstatementjudgmentalAnd objective of brainstorming with the audit team is emphasizing the importance of maintaining ___________ ____________throughout the audit regarding the potential for material misstatement due to fraudProfessional skepticismAn active role in the oversight of the assessment of the risk of fraud should be assumed by theAudit committeeFinancial statement level risks are _________ risks in that they apply to multiple components of the financial statementspervasiveThe audit team is required to hold discussions, referred to as _________ _________, about the entities financial statements susceptibility to fraudBrainstorming sessionsIf the uncorrected total Misstatements identified during the audit process do not cause of the financial statements to be materially misstated, auditors should issue a(n) ___________ opinionunqualifiedStandards require extensive _________ of the auditors risk assessment procedures and audit responses to identified risksdocumentationWhenever the auditor find evidence of fraud that causes a material misstatement of the financial statement, it should be reported directly to theAudit committeeOmissions of amounts or disclosures is considered a(n)errorIn _________, the financial statements are intentionally misleadingfraud_________ is another term for misappropriation of assetsfraudMistakes in data processing can easily result inErrorsFinancial statements can be misstated due to errors, _________, or non-compliance with laws or regulationsFraudWhich of the following best describes audit risk?The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.Which of the following is true as it pertains to the auditors responsibility for detecting fraudAn auditor is responsible for obtaining reasonable assurance that the financial statements as a whole are free from material misstatements, whether caused by error or fraud.Which of the following concepts are pervasive in the application of auditing standards?Materiality and audit risk.The existence of audit risk is recognized by the statement in the auditors standard report that the auditor:Obtains reasonable assurance about whether the financial statements are free of material misstatement.Risk of material misstatement refers to a combination of which two components of the audit risk modelInherent risk and control riskAs lower acceptable levels of both audit risk and materiality are established, the auditor should plan more work on individual accounts to:find smaller errorsWhich of the following characteristics would most likely heightened and auditors concern about the risk of intentional manipulation of financial statements?Management place is substantial emphasis on meeting earnings projectionsWhich of the following is a misappropriation of assetsAn employee of a consumer electronics store steals 12 CD players.Auditing standards require auditors to make certain inquiries of management regarding fraud. Which of the following inquiries is required?Whether management has any knowledge of fraud that has been perpetrated on or within the entity.Which of the following is an example of fraudulent financial reporting?Company management falsifies the inventory count, thereby overstating ending inventory and understating cost of sales.When is a duty to disclose fraud to parties other than the entity senior management and it's audit committee most likely to existIn response to inquiries from a successor auditorWhich of the following is correct concerning required auditor communications about fraud?Fraud that involves senior management should be reported directly by the auditor to the audit committee regardless of the amount involved.The auditor obtains an understanding of the entity and it's environment by performing all of the following assessment procedures except:Compute the level of detection riskWhich of the following factors would an auditor least likely consider when assessing the inherent risk associated with sales transactions?The nature of the credit authorization internal control process.Which of the following statements is false as it relates to the auditors responsibility to document the risk assessment?The level of risk must be set quantitatively (i.e., inherent risk is 60%).The disclosure of fraud two parties other than the entities senior management and it's audit committee ordinarily would be precluded by the auditors ethical or legal obligations of confidentiality. However, the auditor has a duty to disclose the information to parties outside the entity in all of the following circumstances except:A Wall Street analyst inquiry regarding future profit projectionsIf risk of material misstatement is higher than originally anticipated, the auditor may respond by:Assign more experienced personnel.Which of the following represents a factual Misstatement?A misstatement found by the auditor that is due to incorrect pricing on a sales invoice.Which of the following factors is least likely to represent an opportunity to commit fraud?Operating losses make a hostile takeover imminent.If the auditor determines that a material misstatement may be due to fraud, the auditor should do all of the following except:Alert the authorities.Which of the following would be classified as an error?Misinterpretation by management of facts that existed when the financial statements were prepared.If acceptable audit risk is set at low and the assessed risk of material misstatement is high, then detection risk must be:lowOne of your clients recently upgraded it's accounting system from a medium-scale general Ledger package to a complex state of the art enterprise resource planning system. This installation took place over the last nine months of the entities fiscal year and is nearly 100% complete by the balance sheet date. Which of the following best describes the main affect of this event on the audit risk model for the current yearIt will likely increase the risk of material misstatementWhich of the following is not one of the three conditions that are generally present when fraud occurs?collusionThe existence of audit risk is recognized by the statement in the auditors standard report that the:Auditor obtains reasonable assurance about whether the financial statements are free of material misstatements.Audit risk is typically considered and assessed:All of the above, - at the assertion level, - at the accounts balance level, - for financial statements as a wholeThe risk that an auditors procedures will lead to a conclusion that a material misstatement in an account balance does not exist when, in fact, a Misstatement does exist, is known as:detection risk