Auditing and Assurance Services Ch 4 WITH QUESTIONS AND CORRECT VERIFIED
ANSWERS GRADED A+
The existence of audit risk is recognized by the statement in the auditor's standard report that the:
A) Auditor obtains reasonable assurance about whether the financial statements are free of material
misstatements.
B) Auditor is responsible for expressing an opinion on the financial statements, which are the
responsibility of management.
C) Financial statements are presented fairly, in all material respects, in conformity with GAAP.
D) Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. - (answer)A
Which of the following factors would an auditor least likely consider when assessing the inherent risk
associated with sales transactions?
A) Billings are made using the percentage-of-completion method of revenue recognition.
B) The nature of the credit authorization process.
C) Some invoices are normally billed prior to shipments [which occur at a later date].
D) The conditions of the sale allow for a right of return or the right to modify the purchase agreement. -
(answer)B
The risk that an auditor's procedures will lead to a conclusion that a material misstatement in an
account balance does not exist when, in fact, a misstatement does exist, is known as:
A) Audit risk.
B) Detection risk.
C) Inherent risk.
D) Business risk. - (answer)B
One of your clients recently upgraded its accounting system from a medium-scale general ledger
package to a complex state-of-the-art enterprise resource planning system. This installation took place
over the last nine months of the entity's fiscal year and is nearly 100% complete by the balance sheet
date. Which of the following best describes the main affect of this event on the audit risk model for the
current year?
A) It will likely increase the risk of material misstatement.
ANSWERS GRADED A+
The existence of audit risk is recognized by the statement in the auditor's standard report that the:
A) Auditor obtains reasonable assurance about whether the financial statements are free of material
misstatements.
B) Auditor is responsible for expressing an opinion on the financial statements, which are the
responsibility of management.
C) Financial statements are presented fairly, in all material respects, in conformity with GAAP.
D) Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. - (answer)A
Which of the following factors would an auditor least likely consider when assessing the inherent risk
associated with sales transactions?
A) Billings are made using the percentage-of-completion method of revenue recognition.
B) The nature of the credit authorization process.
C) Some invoices are normally billed prior to shipments [which occur at a later date].
D) The conditions of the sale allow for a right of return or the right to modify the purchase agreement. -
(answer)B
The risk that an auditor's procedures will lead to a conclusion that a material misstatement in an
account balance does not exist when, in fact, a misstatement does exist, is known as:
A) Audit risk.
B) Detection risk.
C) Inherent risk.
D) Business risk. - (answer)B
One of your clients recently upgraded its accounting system from a medium-scale general ledger
package to a complex state-of-the-art enterprise resource planning system. This installation took place
over the last nine months of the entity's fiscal year and is nearly 100% complete by the balance sheet
date. Which of the following best describes the main affect of this event on the audit risk model for the
current year?
A) It will likely increase the risk of material misstatement.
