1. During the initial planning phase of an audit, a CPA most likely would a. Identify specific internal control activities that are likely to prevent fraud. b. Evaluate the reasonableness of the client’s accounting estimates. c. Discuss the timing of the audit procedures with the client’s management. d. Inquire of the client’s attorney as to whether any unrecorded claims are probably of assertion.
2. When planning an audit, an auditor should a. Consider whether substantive tests may be reduced based on the results of the internal control documentation. b. Make preliminary judgments about materiality levels for audit purposes. c. Conclude whether changes in compliance with prescribed controls require a change in the assessed level of control risk. d. Prepare a preliminary draft of the management representation letter.
3. An auditor obtains knowledge about a new client’s business and its industry to a. Make constructive suggestions concerning improvements to the client’s internal control. b. Develop an attitude of professional skepticism concerning management’s financial statement assertions. c. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. d. Understand the events and transactions that may have an effect on the client’s financial statements.
4. The existence of audit risk is recognized by the statement in the auditor’s standard report that the a. Auditor is responsible for expressing an opinion on the financial statements, which are the responsibility of management. b. Financial statements are presented fairly, in all material respects, in accordance with the financial reporting framework. c. Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. d. Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement.
5. The risk that an auditor’s procedures will lead to the conclusion that a material misstatement does not exist in an account balance or class of transactions when, in fact, such misstatement does exist is a. Audit risk. b. Inherent risk. c. Control risk. d. Detection risk.
6. Inherent risk and control risk differ from detection risk in that they a. Arise from the misapplication of auditing procedures. b. May be assessed in either quantitative or nonquantitative terms. c. Exist independently of the financial statement audit. d. Can be changed at the auditor’s discretion.
7. As the acceptable level of detection risk decreases, an auditor may a. Reduce substantive testing by relying on the assessments of inherent risk and control risk. b. Postpone the planned timing of substantive tests from interim dates to the year-end. c. Eliminate the assessed level of inherent risk from consideration as a planning factor. d. Lower the assessed level of control risk from the maximum level to below the maximum.
8. As the acceptable level of detection risk decreases, an auditor may change the a. Timing of substantive tests by performing them at an interim date rather than at year-end. b. Nature of substantive tests from a less effective to a more effective procedure. c. Timing of tests of controls by performing them at several dates rather than at one time. d. Assessed level of inherent risk to a higher amount.
9. Which of the following audit risk components may be assessed in nonquantitativeterms?