ACC 406 - EXAM 1 QUESTIONS WITH CORRECT
ANSWERS 2025/2026
First audit phase - CORRECT ANSWER -client acceptance
Second audit phase - CORRECT ANSWER -preliminary engagement activities
Third audit phase - CORRECT ANSWER -plan the audit
Fourth audit phase - CORRECT ANSWER -consider and audit internal controls
Fifth audit phase - CORRECT ANSWER -audit business processes and related accounts
Sixth audit phase - CORRECT ANSWER -complete the audit
Seventh audit phase - CORRECT ANSWER -evaluate results and issue audit report
Materiality - CORRECT ANSWER -financial significance of an item
Is materiality inversely related to audit risk? - CORRECT ANSWER -NO
How are audit risk and evidence related? - CORRECT ANSWER -inversely
Some things that would lower tolerable misstatement - CORRECT ANSWER -high risk of
misstatement, increased account issues, history of material weakness/deficiencies, high
turnover of employees
, What is used to determine tolerable misstatement? - CORRECT ANSWER -planned materiality
Audit risk model - CORRECT ANSWER -AR = IR x CR x DR
Audit risk - CORRECT ANSWER -risk that the auditor will not find material misstatements
Risk of material misstatement - CORRECT ANSWER -risk that assertions related to account
balances contain misstatements that could be material
Inherent risk - CORRECT ANSWER -risk of misstatement due to error or fraud
Control risk - CORRECT ANSWER -risk that material misstatement could occur and not be
prevented, detected, or corrected
Detection risk - CORRECT ANSWER -risk that the auditor will not detect such misstatements
How are detection risk and evidence related? - CORRECT ANSWER -inversely
6 account balance assertions - CORRECT ANSWER -rights and oblig, existence, completeness,
valuation, presentation, classification
7 transaction assertions - CORRECT ANSWER -authorization, occurrence, completeness, cutoff,
accuracy, presentation, classification
Which assertions are more important for asset accounts? - CORRECT ANSWER -valuation,
existence, classification, rights and obligations
ANSWERS 2025/2026
First audit phase - CORRECT ANSWER -client acceptance
Second audit phase - CORRECT ANSWER -preliminary engagement activities
Third audit phase - CORRECT ANSWER -plan the audit
Fourth audit phase - CORRECT ANSWER -consider and audit internal controls
Fifth audit phase - CORRECT ANSWER -audit business processes and related accounts
Sixth audit phase - CORRECT ANSWER -complete the audit
Seventh audit phase - CORRECT ANSWER -evaluate results and issue audit report
Materiality - CORRECT ANSWER -financial significance of an item
Is materiality inversely related to audit risk? - CORRECT ANSWER -NO
How are audit risk and evidence related? - CORRECT ANSWER -inversely
Some things that would lower tolerable misstatement - CORRECT ANSWER -high risk of
misstatement, increased account issues, history of material weakness/deficiencies, high
turnover of employees
, What is used to determine tolerable misstatement? - CORRECT ANSWER -planned materiality
Audit risk model - CORRECT ANSWER -AR = IR x CR x DR
Audit risk - CORRECT ANSWER -risk that the auditor will not find material misstatements
Risk of material misstatement - CORRECT ANSWER -risk that assertions related to account
balances contain misstatements that could be material
Inherent risk - CORRECT ANSWER -risk of misstatement due to error or fraud
Control risk - CORRECT ANSWER -risk that material misstatement could occur and not be
prevented, detected, or corrected
Detection risk - CORRECT ANSWER -risk that the auditor will not detect such misstatements
How are detection risk and evidence related? - CORRECT ANSWER -inversely
6 account balance assertions - CORRECT ANSWER -rights and oblig, existence, completeness,
valuation, presentation, classification
7 transaction assertions - CORRECT ANSWER -authorization, occurrence, completeness, cutoff,
accuracy, presentation, classification
Which assertions are more important for asset accounts? - CORRECT ANSWER -valuation,
existence, classification, rights and obligations
