Multiple Choice Questions
1. Which of the following defines tolerable misstatement?
a. Maximum amount of misstatement the auditor is willing to tolerate in a segment.
b. Minimum amount of misstatement that the auditor is willing to tolerate before initiating fraud detection procedures.
c. Maximum amount of misstatement that the auditor is willing to tolerate before initiating fraud detection procedures.
d. None of the above.

2. Tolerable misstatement is used to determine which of the following applies to a segment?
a. Is materially misstated by comparing the tolerable misstatement to the results specified by generally accepted auditing standards.
b. Is materially misstated by comparing the maximum misstatement to the results of testing.
c. Is materially misstated by comparing the tolerable misstatement to the results of testing.
d. Is materially misstated by comparing the minimum misstatement to the results of specified by generally accepted auditing standards.

3. Risk in the context of financial information is defined as which of these?
a. Likelihood that a material misstatement will influence the decision of a reasonable user of the financial statements.
b. Likelihood of significant errors in the financial statements.
c. Likelihood of material misstatements in the financial statements.
d. Likelihood that fraud will influence the decision of a reasonable user of the financial statements.

4. How many components of risk must the auditor consider?
a. 1.
b. 2.
c. 3.
d. 4.
e. 5.

5. Inherent risk is the likelihood that an account or class of transactions is materially misstated when?
a. After considering the effects of internal controls.
b. Before considering applicable audit procedures.
c. Before considering the effects of internal controls.
d. None of the above.