TRUE-FALSE QUESTIONS

1. Each of the following factors would lead the auditor to assess control risk at a higher level: the company lacks personnel or expertise to deal with changes in the industry, there exist significant supply chain risks, the industry is mature and declining, and there exist regulatory requirements that increase legal exposure.

2. When conducting trend analysis, it is important that the auditor not develop expectations and establish decision rules in advance; doing so would make it more difficult for the auditor to identify unexpected results for additional investigation.

3. When performing preliminary analytical procedures and evaluating the results of those procedures, it is important that the auditor discusses the results with management before identifying hypotheses to explain the results; by discussing with management the auditor will be better able to identify alternative explanations.

4. A high level of detection risk means that the audit firm is willing to take accept a low risk of not detecting a material misstatement.

5. The interpretation of audit risk set at a low level (1%) is that the auditor is willing to take only a 1% chance of expressing an audit opinion that the financial statement are fairly presented when they are materially misstated.

6. The nature of risk response refers to the sufficiency and appropriateness of evidence that is necessary given the client's assessed risks, materiality, and the level of audit risk that is deemed acceptable.

7. In terms of the timing of the risk response, the following procedures can be completed only at or after period end: comparing the financial statements to the accounting records, evaluating adjusting journal entries made by management in preparing the financial statements, and conducting procedures to response to risks that management may have engaged in improper transactions at period end.