AUDITING A RISK BASED APPROACH
UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS COMPLETE STUDY
GUIDE FULL SOLUTION
●● reasonable assurance
Answer: Inform users that auditors do not guarantee/insure the fair
presentation , that there is some risk that statements are not fairly stated
even when the opinion is unqualified
●● Free of material misstatement
Answer: Inform users that auditor's responsibility is limited to material
financial statement
●● Risk-based audit approach
Answer: Audit approach that assess the types and likelihood of
misstatements and adjusts the amount and type of audit work to the
likelihood of occurring misstatements
●● What the auditor performs
Answer: 1. Identification of client's strategy and processes
2. Examination of core business process and resource management
,3. Identification of key processes, objectives, inputs, activities, outputs,
system and transactions
4. Assessment of risks that processes aren't able to meet goals and
controls related to those risk
●● Components of Risk
Answer: 1. Audit risk.
2. Engagement risk
3. Financial reporting risk
4. Business risk
●● Accounting-based Auditing
Answer: Auditors first obtain an understanding of control and assess
control risk for particular types of errors and frauds in specific accounts
and cycle
●● Risk-based audit
Answer: Audit team views all activities in the organization first in terms
of risks to strategies and objectives, and then in terms of management's
plans and processes to mitigate the risk. Obtaining an understanding of
client's objectives. Risks are identified and are determined how the
management plans to mitigate the risk.
●● Factors affecting business risk
, Answer: Economic climate, economic downturn, technological change,
competition, business volatility, geographic location
●● Factors affecting financial reporting risk
Answer: Competence and integrity of management, incentive to
management to misstated financial statements, complexity of
transactions, internal control
●● Audit risk
Answer: The risk that the auditor expresses an inappropriate audit
opinion when the financial statements are materially misstated.
●● Controlling audit risk
Answer: 1. Not accepting certain companies as client
2. Set audit risk at a level that the auditor believes will mitigate the
likelihood that the auditor will fail to identify material misstatements
●● Engagement risk
Answer: The risk of loss or injury to the auditors' reputation by
association with a client that goes bankrupt or one whose management
lacks integrity.
●● Controlling engagement risk
Answer: Careful selection and retention of client
UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS COMPLETE STUDY
GUIDE FULL SOLUTION
●● reasonable assurance
Answer: Inform users that auditors do not guarantee/insure the fair
presentation , that there is some risk that statements are not fairly stated
even when the opinion is unqualified
●● Free of material misstatement
Answer: Inform users that auditor's responsibility is limited to material
financial statement
●● Risk-based audit approach
Answer: Audit approach that assess the types and likelihood of
misstatements and adjusts the amount and type of audit work to the
likelihood of occurring misstatements
●● What the auditor performs
Answer: 1. Identification of client's strategy and processes
2. Examination of core business process and resource management
,3. Identification of key processes, objectives, inputs, activities, outputs,
system and transactions
4. Assessment of risks that processes aren't able to meet goals and
controls related to those risk
●● Components of Risk
Answer: 1. Audit risk.
2. Engagement risk
3. Financial reporting risk
4. Business risk
●● Accounting-based Auditing
Answer: Auditors first obtain an understanding of control and assess
control risk for particular types of errors and frauds in specific accounts
and cycle
●● Risk-based audit
Answer: Audit team views all activities in the organization first in terms
of risks to strategies and objectives, and then in terms of management's
plans and processes to mitigate the risk. Obtaining an understanding of
client's objectives. Risks are identified and are determined how the
management plans to mitigate the risk.
●● Factors affecting business risk
, Answer: Economic climate, economic downturn, technological change,
competition, business volatility, geographic location
●● Factors affecting financial reporting risk
Answer: Competence and integrity of management, incentive to
management to misstated financial statements, complexity of
transactions, internal control
●● Audit risk
Answer: The risk that the auditor expresses an inappropriate audit
opinion when the financial statements are materially misstated.
●● Controlling audit risk
Answer: 1. Not accepting certain companies as client
2. Set audit risk at a level that the auditor believes will mitigate the
likelihood that the auditor will fail to identify material misstatements
●● Engagement risk
Answer: The risk of loss or injury to the auditors' reputation by
association with a client that goes bankrupt or one whose management
lacks integrity.
●● Controlling engagement risk
Answer: Careful selection and retention of client
