ACCT 497 EXAM 2 (AUDIT) UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
Question:
1. Audit risk = Control risk x Detection risk x Inherent risk
Answer:
Audit risk = Control risk x Detection risk x Inherent risk
Question:
2. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
A client fails to discover employee fraud on a timely basis
because bank accounts are not reconciled monthly.:
Answer:
Control Risk: Increase
Inherent Risk: No Effect
Acceptable Audit Risk: No effect
Planned evidence: Increase
Question:
3. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
Cash is more susceptible to theft than an inventory of
coal:
Answer:
Control Risk: No Effect
Inherent Risk: Increase
Acceptable Audit Risk: No Effect
Planned evidence: Increase
,Question:
4. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
Disbursements have occurred without proper approval:
Answer:
Control Risk: Increase
Inherent Risk: No Effect
Acceptable Audit Risk: No Effect
Planned evidence: Increase
Question:
5. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
There is inadequate segregation of duties.:
Answer:
Control Risk: Increase
Inherent Risk: No Effect
Acceptable Audit Risk: No Effect
Planned evidence: Increase
Question:
6. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
Technological developments make a major product
obsolete:
Answer:
Control Risk: No Effect
Inherent Risk: Increase
Acceptable Audit Risk: No Effect
Planned evidence: Increase
, Question:
7. Which of the following can revoke the CPA's license to
practice?
Answer:
State Board of Accountancy
Question:
8. Which of the following ethical concepts is considered to
be the cornerstone of the auditing profession?
Answer:
Independence
Question:
9. In which one of the following situations would a CPA be
in violation of the AICPA Code of Professional Conduct in
determining a fee?
Answer:
A fee based on whether the CPA's report on the client's financial statements
results in the approval of a bank loan.
Question:
10. Which of the following situations requires client consent
to disclose confidential information contained in audit
documentation?
Answer:
Request from another CPA firm that is considering making a bid to obtain the
audit engagement.
Question:
11. Joe Fastrack is an audit partner in Deloitte's Los Angeles
office. Under which of the following situations is
independence impaired?
Answer:
Joe's dependent daughter holds stock in one of the Los Angeles office's audit
clients through her college fund.
Question:
12. Which of the following statements about audit
documentation is true?
Answer:
It is the property of the auditor, and client permission is generally required to
allow other parties to examine the documentation.
QUESTIONS AND CORRECT ANSWERS
Question:
1. Audit risk = Control risk x Detection risk x Inherent risk
Answer:
Audit risk = Control risk x Detection risk x Inherent risk
Question:
2. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
A client fails to discover employee fraud on a timely basis
because bank accounts are not reconciled monthly.:
Answer:
Control Risk: Increase
Inherent Risk: No Effect
Acceptable Audit Risk: No effect
Planned evidence: Increase
Question:
3. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
Cash is more susceptible to theft than an inventory of
coal:
Answer:
Control Risk: No Effect
Inherent Risk: Increase
Acceptable Audit Risk: No Effect
Planned evidence: Increase
,Question:
4. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
Disbursements have occurred without proper approval:
Answer:
Control Risk: Increase
Inherent Risk: No Effect
Acceptable Audit Risk: No Effect
Planned evidence: Increase
Question:
5. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
There is inadequate segregation of duties.:
Answer:
Control Risk: Increase
Inherent Risk: No Effect
Acceptable Audit Risk: No Effect
Planned evidence: Increase
Question:
6. Using the audit risk model, state the effect on control risk,
inherent risk, acceptable audit risk, and planned evidence
for each of the following independent events. Select one
letter for each of the three independent variables and
planned evidence:
I= increase, D=decrease, N=no effect, and C= cannot
determine from the information provided.
Technological developments make a major product
obsolete:
Answer:
Control Risk: No Effect
Inherent Risk: Increase
Acceptable Audit Risk: No Effect
Planned evidence: Increase
, Question:
7. Which of the following can revoke the CPA's license to
practice?
Answer:
State Board of Accountancy
Question:
8. Which of the following ethical concepts is considered to
be the cornerstone of the auditing profession?
Answer:
Independence
Question:
9. In which one of the following situations would a CPA be
in violation of the AICPA Code of Professional Conduct in
determining a fee?
Answer:
A fee based on whether the CPA's report on the client's financial statements
results in the approval of a bank loan.
Question:
10. Which of the following situations requires client consent
to disclose confidential information contained in audit
documentation?
Answer:
Request from another CPA firm that is considering making a bid to obtain the
audit engagement.
Question:
11. Joe Fastrack is an audit partner in Deloitte's Los Angeles
office. Under which of the following situations is
independence impaired?
Answer:
Joe's dependent daughter holds stock in one of the Los Angeles office's audit
clients through her college fund.
Question:
12. Which of the following statements about audit
documentation is true?
Answer:
It is the property of the auditor, and client permission is generally required to
allow other parties to examine the documentation.
