Chapter 4 Audit Quiz

Stephany Fox
Quiz by Stephany Fox, updated more than 1 year ago
Stephany Fox
Created by Stephany Fox over 4 years ago
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Description

Audit 441 Chapter 4
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Resource summary

Question 1

Question
[blank_start]Engagement[blank_end] risk is the risk that the auditor is exposed to financial loss or damage to his or her professional reputation from litigation, adverse publicity, or other events arising in connection with the audited financial statements.
Answer
  • Engagement
  • Audit
  • Client

Question 2

Question
[blank_start]Audit[blank_end] risk is the risk that we miss a misstatement in the financial statements. It focuses on entire financial statements.
Answer
  • Audit
  • Inherent
  • Control

Question 3

Question
Inherent risk is the likelihood that a material misstatement in the financial statements exists without considering the client's internal controls.
Answer
  • True
  • False

Question 4

Question
Control risk is the risk that the client's internal controls will distract from potential misstatements.
Answer
  • True
  • False

Question 5

Question
"Inherent control risk" and "client risk" are terms that can be used interchangeably. They both refer to the combination of risks that the client can control.
Answer
  • True
  • False

Question 6

Question
[blank_start]Detection[blank_end] risk is the risk that the auditor is willing to accept that he or she will fail to detect a material misstatement in the financial statements.
Answer
  • Detection

Question 7

Question
The audit risk model can be found with the following formula: AR = [blank_start]RMM[blank_end] x DR
Answer
  • RMM
  • CR

Question 8

Question
An alternative equation for the audit risk model is: AR = (IR x CR) x [blank_start]DR[blank_end]
Answer
  • DR
  • RMM

Question 9

Question
Increased RMM and decreased DR means you should increase the amount of testing.
Answer
  • True
  • False

Question 10

Question
Increased IR with decreased DR means you should decrease the amount of testing.
Answer
  • True
  • False

Question 11

Question
Increased CR means decreased DR, so the amount of testing will decrease.
Answer
  • True
  • False

Question 12

Question
Increased AR means DR is increased, which means the amount of testing will decrease.
Answer
  • True
  • False

Question 13

Question
If detection risk has gone up, that probably points to which of the following?
Answer
  • Decreased amounts of testing
  • Increased amounts of testing

Question 14

Question
The three conditions that usually exist when fraud occurs are opportunity, incentive, and [blank_start]rationalization[blank_end].
Answer
  • rationalization
  • Identification
  • Discussion

Question 15

Question
Which of the following is NOT an aspect of SAS 99
Answer
  • Requires ‘brainstorming’ sessions to discuss how and where the entity’s financial statements might be susceptible to material misstatement due to fraud
  • Describes fraud and its characteristics
  • Requires development of specific measures to decrease detection risk.

Question 16

Question
If fraud is suspected, the auditor should obtain additional evidence, consider the impact on the rest of the audit, discuss the problem with management on level above the level where the fraud occurred, suggest that the client consult with legal counsel, and consult legal counsel themselves.
Answer
  • True
  • False
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