AUD Becker Mock Exam 1 Questions with
Correct Answers
Things that impair independence o A threatened (and likely) lawsuit
o a credit card balance in > $10,000
o overdue audit fees if overdue by > one year
A risk assessment based on the effective operation of internal control most likely would involve
all of the following, *except*:
a. Testing of controls.
b. Identifying specific internal control policies and procedures relevant to specific assertions.
c. Performing more extensive substantive tests with larger sample sizes than originally planned.
d. Identifying the types of potential misstatements. *c. Performing more extensive
substantive tests with larger sample sizes than originally planned.*
Explanation Choice "3" is correct. A risk assessment based on the effective operation of internal
control increases allowable detection risk, which reduces the required extent of substantive
testing.
Risk assessment based on the effective operation of IC =*DR increases = Substantive testing
decreases*
,Choice "1" is incorrect. If the auditor's risk assessment is based on the effective operation of
internal control, the auditor must test the controls to support that assessment.
Choice "2" is incorrect. If the auditor's risk assessment is based on the effective operation of
internal control, the auditor must identify and test specific relevant controls to support that
assessment.
Choice "4" is incorrect. The auditor should always use his or her understanding of internal
control to consider the types of potential misstatements that may occur.
Which of the following properly describes the *auditor's responsibilities* as opposed to
*management's responsibilities*?
a. Management is responsible for affirming that the effects of any uncorrected misstatements in
the financial statements are immaterial and the auditor is responsible for obtaining reasonable
assurance about whether the financial statements are free of material misstatement.
b. The auditor is responsible for the entity's financial statements and management is responsible
for the selection and application of accounting principles.
c. Management is responsible for the entity's financial statements and the auditor is responsible
for the selection and application of accounting principles.
d. The auditor is responsible for identifying the laws and regulations applicable to the entity's
activities and management is responsible for affirming that the effects of any uncorrected
misstatements in the fi *a. Management is responsible for affirming that the effects of any
,uncorrected misstatements in the financial statements are immaterial and the auditor is
responsible for obtaining reasonable assurance about whether the financial statements are free of
material misstatement.*
Explanation Choice "1" is correct. Management is responsible for affirming that the effects of
any uncorrected misstatements in the financial statements are immaterial and the auditor is
responsible for obtaining reasonable assurance about whether the financial statements are free of
material misstatement.
Choices "2" and "3" are incorrect. Management is responsible for both the entity's financial
statements and for the selection and application of accounting principles.
Choice "4" is incorrect. Management is responsible for both identifying the laws and regulations
applicable to the entity's activities, and for affirming that the effects of any uncorrected
misstatements in the financial statements are immaterial.
As the acceptable level of detection risk decreases, an auditor may change the:
a. Nature of substantive tests from a less effective to a more effective procedure.
b. Timing of substantive tests from year-end to an interim date.
c. Assessed level of control risk from high to low.
d. Assessed level of inherent risk. *a. Nature of substantive tests from a less effective to a
more effective procedure.*
Risk assessment based on the operation of IC = *DR increases = Substantive tests decrease*
, Explanation Choice "1" is correct. *Better evidence must be obtained to achieve a lower level of
detection risk.*
(*better evidence = lower risk*)
Choice "2" is incorrect. Shifting tests from year-end to interim increases detection risk. Choice
"3" is incorrect. The assessed level of control risk (based on the auditor's evaluation of the
client's controls) determines the risk of material misstatement, which in turn affects the
acceptable level of detection risk. The acceptable level of detection risk is therefore determined
by the assessed level of control risk, not vice versa. Choice "4" is incorrect. The assessed level of
inherent risk (based on the auditor's evaluation of the nature of the assertion) determines the risk
of material misstatement, which in turn affects the acceptable level of detection risk. The
acceptable level of detection risk is therefore determined by the assessed level of inherent risk,
not vice versa.
Which is true about accounts receivable confirmations?
a. Confirmations provide evidence about existence, rights, and valuation.
b. Blank confirmations provide improved response rates but may be less reliable.
c. Confirmations may be based on single transactions rather than entire customer balances.
d. The client may mail the confirmations, but they should be returned directly to the auditor.
*c. Confirmations may be based on single transactions rather than entire customer
balances.*
Correct Answers
Things that impair independence o A threatened (and likely) lawsuit
o a credit card balance in > $10,000
o overdue audit fees if overdue by > one year
A risk assessment based on the effective operation of internal control most likely would involve
all of the following, *except*:
a. Testing of controls.
b. Identifying specific internal control policies and procedures relevant to specific assertions.
c. Performing more extensive substantive tests with larger sample sizes than originally planned.
d. Identifying the types of potential misstatements. *c. Performing more extensive
substantive tests with larger sample sizes than originally planned.*
Explanation Choice "3" is correct. A risk assessment based on the effective operation of internal
control increases allowable detection risk, which reduces the required extent of substantive
testing.
Risk assessment based on the effective operation of IC =*DR increases = Substantive testing
decreases*
,Choice "1" is incorrect. If the auditor's risk assessment is based on the effective operation of
internal control, the auditor must test the controls to support that assessment.
Choice "2" is incorrect. If the auditor's risk assessment is based on the effective operation of
internal control, the auditor must identify and test specific relevant controls to support that
assessment.
Choice "4" is incorrect. The auditor should always use his or her understanding of internal
control to consider the types of potential misstatements that may occur.
Which of the following properly describes the *auditor's responsibilities* as opposed to
*management's responsibilities*?
a. Management is responsible for affirming that the effects of any uncorrected misstatements in
the financial statements are immaterial and the auditor is responsible for obtaining reasonable
assurance about whether the financial statements are free of material misstatement.
b. The auditor is responsible for the entity's financial statements and management is responsible
for the selection and application of accounting principles.
c. Management is responsible for the entity's financial statements and the auditor is responsible
for the selection and application of accounting principles.
d. The auditor is responsible for identifying the laws and regulations applicable to the entity's
activities and management is responsible for affirming that the effects of any uncorrected
misstatements in the fi *a. Management is responsible for affirming that the effects of any
,uncorrected misstatements in the financial statements are immaterial and the auditor is
responsible for obtaining reasonable assurance about whether the financial statements are free of
material misstatement.*
Explanation Choice "1" is correct. Management is responsible for affirming that the effects of
any uncorrected misstatements in the financial statements are immaterial and the auditor is
responsible for obtaining reasonable assurance about whether the financial statements are free of
material misstatement.
Choices "2" and "3" are incorrect. Management is responsible for both the entity's financial
statements and for the selection and application of accounting principles.
Choice "4" is incorrect. Management is responsible for both identifying the laws and regulations
applicable to the entity's activities, and for affirming that the effects of any uncorrected
misstatements in the financial statements are immaterial.
As the acceptable level of detection risk decreases, an auditor may change the:
a. Nature of substantive tests from a less effective to a more effective procedure.
b. Timing of substantive tests from year-end to an interim date.
c. Assessed level of control risk from high to low.
d. Assessed level of inherent risk. *a. Nature of substantive tests from a less effective to a
more effective procedure.*
Risk assessment based on the operation of IC = *DR increases = Substantive tests decrease*
, Explanation Choice "1" is correct. *Better evidence must be obtained to achieve a lower level of
detection risk.*
(*better evidence = lower risk*)
Choice "2" is incorrect. Shifting tests from year-end to interim increases detection risk. Choice
"3" is incorrect. The assessed level of control risk (based on the auditor's evaluation of the
client's controls) determines the risk of material misstatement, which in turn affects the
acceptable level of detection risk. The acceptable level of detection risk is therefore determined
by the assessed level of control risk, not vice versa. Choice "4" is incorrect. The assessed level of
inherent risk (based on the auditor's evaluation of the nature of the assertion) determines the risk
of material misstatement, which in turn affects the acceptable level of detection risk. The
acceptable level of detection risk is therefore determined by the assessed level of inherent risk,
not vice versa.
Which is true about accounts receivable confirmations?
a. Confirmations provide evidence about existence, rights, and valuation.
b. Blank confirmations provide improved response rates but may be less reliable.
c. Confirmations may be based on single transactions rather than entire customer balances.
d. The client may mail the confirmations, but they should be returned directly to the auditor.
*c. Confirmations may be based on single transactions rather than entire customer
balances.*
