BYU ACC 406 Final exam with |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
correct answers |||\\\
Why does demand for auditing exist in a free-market economy, even if it were not required by
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
regulation? - correct answer✔✔Due to the nature of the agency relationship, natural conflict |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
of interest, and information asymmetry between an absentee owner and manager
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
T/F Auditing is different from most other accounting courses because learning auditing largely
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
involves memorizing technical formulas and rules. - correct answer✔✔False
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Which of the following is the best definition for financial statement auditing? - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔A systematic process of objectively obtaining and evaluating evidence to determine |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
and communicate whether economic assertions are reported in accordance with established
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
criteria.
Following are five of the phases in the financial statement audit process. Select the item (a-d) |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
that places the phases in the proper order.|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
I. Consider and audit internal control
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\
II. Evaluate results and issue the audit report
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
III. Client acceptance/continuance
|||\\\ |||\\\
IV. Audit business processes and related accounts
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
V. Plan the audit - correct answer✔✔III, V, I, IV, II
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The risk that a material misstatement occurs, goes undetected by the client's internal control
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
structure, and is not detected by the auditor, who unknowingly issues a "clean" audit report is |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
known as: - correct answer✔✔audit risk |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
,Which of the following statements is correct concerning the concept of materiality? - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔No formal requirements exist for determining materiality—it is a matter of |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
professional judgment. |||\\\
T/F It is management's responsibility to ensure that the company's financial statements are
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
prepared in accordance with GAAP. It is the auditor's responsibility to provide reasonable
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
assurance that the financial statements are free of material misstatement. - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔true
T/F Tests of details of balances emphasize testing the detail amounts that make up the ending
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
balances in the general ledger. - correct answer✔✔true |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
T/F Tests of controls are concerned with evaluating whether controls are sufficiently effective to
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
justify reducing control risk further from the planned level and increasing reliance on
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
substantive tests. - correct answer✔✔false |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
T/F Substantive tests of transactions emphasize the verification of dollar amounts of
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
transactions recorded in the journals and then posted in the general ledger. - correct |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔true
T/F Tests of controls are required on any audit of a private company where the auditor believes
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
the controls are either inappropriately designed or the implementation of the control is
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
ineffective. - correct answer✔✔false |||\\\ |||\\\ |||\\\ |||\\\
A dual-purpose test - correct answer✔✔Is both a substantive test of transactions and a test of
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
controls.
Which of the following statements is not correct about materiality?
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
,A. The concept of materiality recognizes that some matters are important to users for fair
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
presentation of the financial statements in conformity with GAAP, while other matters are not |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
important.
B. Materiality is defined as the total amount of each misstatement that could be material to
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
any one of the financial statements individually.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
C. Materiality judgments are made in light of surrounding circumstances and necessarily
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
involve both quantitative and qualitative judgments.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\
D. An auditor's consideration of materiality is influenced by the auditor's perception of the
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
needs of a reasonable person who will rely on the financial statements. - correct answer✔✔B
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The three steps in applying materiality are listed below in random order.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Evaluate audit findings |||\\\ |||\\\
Determine tolerable misstatement |||\\\ |||\\\
Determine a materiality level for the overall financial statements |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The correct sequence from start to finish is: - correct answer✔✔3, 2, 1
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Which of the following provides the best definition of planning materiality?
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
A. The maximum amount by which management believes the financial statements could be
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
misstated and still not affect the decision of users. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
B. The maximum amount by which the auditor believes the financial statements could be
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
misstated and still not affect the decision of users. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
C. The amount determined by auditing standards that auditors must use when planning an
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
audit.
, D. All of the above - correct answer✔✔B
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Determining tolerable misstatement is necessary because: - correct answer✔✔evidence is |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
accumulated by financial statement segments during the course of the audit. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
T/F Assume you are planning an audit and you determine that materiality (i.e. the size of
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
misstatement that is expected to affect a financial statement user's decision) for a client is |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
lower than you originally anticipated. Thus, you must adjust the audit plan to increase the
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
quality and/or quantity of audit evidence. - correct answer✔✔true
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
If planned detection risk is reduced, the quality and/or quantity of evidence the auditor
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
accumulates should - correct answer✔✔increase |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
An auditor may compensate for a high level of control risk by increasing the - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔quality or quantity of audit evidence |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The audit risk model is used primarily for the purpose of - correct answer✔✔determining the
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
audit plan |||\\\
The auditor set acceptable audit risk at 3%, assessed inherent risk at 100% and control risk at
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
50%, and determined a planned detection risk of 6%. If control risk had been assessed at 75%,
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
planned detection risk would need to be ____ to keep acceptable audit risk at 3%. - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔4%
In an audit area that has a higher level of inherent risk, it would be prudent to
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
A. increase the amount of evidence
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\
B. Assign more experienced staff
|||\\\ |||\\\ |||\\\ |||\\\
correct answers |||\\\
Why does demand for auditing exist in a free-market economy, even if it were not required by
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
regulation? - correct answer✔✔Due to the nature of the agency relationship, natural conflict |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
of interest, and information asymmetry between an absentee owner and manager
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
T/F Auditing is different from most other accounting courses because learning auditing largely
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
involves memorizing technical formulas and rules. - correct answer✔✔False
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Which of the following is the best definition for financial statement auditing? - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔A systematic process of objectively obtaining and evaluating evidence to determine |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
and communicate whether economic assertions are reported in accordance with established
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
criteria.
Following are five of the phases in the financial statement audit process. Select the item (a-d) |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
that places the phases in the proper order.|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
I. Consider and audit internal control
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\
II. Evaluate results and issue the audit report
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
III. Client acceptance/continuance
|||\\\ |||\\\
IV. Audit business processes and related accounts
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
V. Plan the audit - correct answer✔✔III, V, I, IV, II
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The risk that a material misstatement occurs, goes undetected by the client's internal control
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
structure, and is not detected by the auditor, who unknowingly issues a "clean" audit report is |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
known as: - correct answer✔✔audit risk |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
,Which of the following statements is correct concerning the concept of materiality? - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔No formal requirements exist for determining materiality—it is a matter of |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
professional judgment. |||\\\
T/F It is management's responsibility to ensure that the company's financial statements are
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
prepared in accordance with GAAP. It is the auditor's responsibility to provide reasonable
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
assurance that the financial statements are free of material misstatement. - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔true
T/F Tests of details of balances emphasize testing the detail amounts that make up the ending
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
balances in the general ledger. - correct answer✔✔true |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
T/F Tests of controls are concerned with evaluating whether controls are sufficiently effective to
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
justify reducing control risk further from the planned level and increasing reliance on
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
substantive tests. - correct answer✔✔false |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
T/F Substantive tests of transactions emphasize the verification of dollar amounts of
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
transactions recorded in the journals and then posted in the general ledger. - correct |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔true
T/F Tests of controls are required on any audit of a private company where the auditor believes
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
the controls are either inappropriately designed or the implementation of the control is
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
ineffective. - correct answer✔✔false |||\\\ |||\\\ |||\\\ |||\\\
A dual-purpose test - correct answer✔✔Is both a substantive test of transactions and a test of
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
controls.
Which of the following statements is not correct about materiality?
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
,A. The concept of materiality recognizes that some matters are important to users for fair
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
presentation of the financial statements in conformity with GAAP, while other matters are not |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
important.
B. Materiality is defined as the total amount of each misstatement that could be material to
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
any one of the financial statements individually.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
C. Materiality judgments are made in light of surrounding circumstances and necessarily
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
involve both quantitative and qualitative judgments.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\
D. An auditor's consideration of materiality is influenced by the auditor's perception of the
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
needs of a reasonable person who will rely on the financial statements. - correct answer✔✔B
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The three steps in applying materiality are listed below in random order.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Evaluate audit findings |||\\\ |||\\\
Determine tolerable misstatement |||\\\ |||\\\
Determine a materiality level for the overall financial statements |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The correct sequence from start to finish is: - correct answer✔✔3, 2, 1
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Which of the following provides the best definition of planning materiality?
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
A. The maximum amount by which management believes the financial statements could be
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
misstated and still not affect the decision of users. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
B. The maximum amount by which the auditor believes the financial statements could be
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
misstated and still not affect the decision of users. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
C. The amount determined by auditing standards that auditors must use when planning an
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
audit.
, D. All of the above - correct answer✔✔B
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
Determining tolerable misstatement is necessary because: - correct answer✔✔evidence is |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
accumulated by financial statement segments during the course of the audit. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
T/F Assume you are planning an audit and you determine that materiality (i.e. the size of
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
misstatement that is expected to affect a financial statement user's decision) for a client is |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
lower than you originally anticipated. Thus, you must adjust the audit plan to increase the
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
quality and/or quantity of audit evidence. - correct answer✔✔true
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
If planned detection risk is reduced, the quality and/or quantity of evidence the auditor
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
accumulates should - correct answer✔✔increase |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
An auditor may compensate for a high level of control risk by increasing the - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔quality or quantity of audit evidence |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
The audit risk model is used primarily for the purpose of - correct answer✔✔determining the
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
audit plan |||\\\
The auditor set acceptable audit risk at 3%, assessed inherent risk at 100% and control risk at
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
50%, and determined a planned detection risk of 6%. If control risk had been assessed at 75%,
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
planned detection risk would need to be ____ to keep acceptable audit risk at 3%. - correct
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
answer✔✔4%
In an audit area that has a higher level of inherent risk, it would be prudent to
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
A. increase the amount of evidence
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\
B. Assign more experienced staff
|||\\\ |||\\\ |||\\\ |||\\\
