3P11 Accounting Winter 2009 Quiz 5 Solution: addcabcdab, Oldies 1150 or CKOC 1. The probability that an auditor will give an inappropriate opinion on the financial statements best describes A) Audit risk. B) Inherent risk. C) Control risk. D) Detection risk. 2. A set of characteristics that defines good control over working relationships within a company is described as A) Control objectives. B) The control environment. C) Control risk assessment. D) Segregation of functional responsibilities. 3. Which of the following is not a way in which auditors use the concept of materiality? A) As a guide in planning the audit program. B) As a guide in evaluating evidence. C) As a guide in making decisions about the audit report. D) As a guide in assessing control risk. 4. The system of internal controls in a small business is highly dependent on A) Segregation of functional responsibilities. B) Complexity of the internal control system. C) The owner-manager's competence and integrity. D) Bonding of employees. 5. The acceptable level of detection risk is inversely related to the A) Assurance provided by substantive tests. B) Risk of misapplying auditing procedures. C) Preliminary judgment about materiality levels. D) Risk of failing to discover material misstatements. 6. If auditors assess control risk at the maximum level, they will tend to A) Perform a great deal of additional tests of controls. B) Perform a great deal of substantive balance-sheet audit work. C) Perform substantive tests at an interim date. D) Perform more audit procedures using evidence. internal 7. When determining the inherent risk related to an account balance, an auditor theoretically does not explicitly consider the A) Liquidity of the account. B) Degree of management estimation involved in determining the proper account balance. C) Related internal control policies and procedures. D) Complexity of calculations involved. 8. A proper segregation of duties reduces the opportunity for employees to be in a position to both A) Journalize entries and prepare financial statements. B) Record cash receipts and cash disbursements. C) Establish internal controls and authorize transactions. D) Perpetrate and conceal errors and irregularities.
2 9. In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have a material effect on an entity's income statement but that misstatements would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate A) $10,000 B) $15,000 C) $20,000 D) $30,000 10. In an audit of financial statements, the auditor's primary concern about an internal control policy or procedure is whether the policy or procedure A) Reflects management's philosophy and operating style. B) Affects management's financial statement assertions. C) Provides adequate safeguards over access to assets. D) Enhances management's decision-making processes. Bonus. What is the name of the oldest radio station in Canada?
2