AT-5909_risk assessment

AT-5909_risk assessment - Page 1 of 7 CPA REVIEW SCHOOL OF...

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Page 1 of 7 CPA REVIEW SCHOOL OF THE PHILIPPINES M a n i l a AUDITING THEORY Risk Assessment and Response to Assessed Risks Related PSAs: PSA 400, 315 and 330 1. Which of the following is correct statement? a. The auditor should use professional judgment to assess audit risk and to design audit procedures to ensure it is eliminated. b. The auditor is an insurer, and his or her report constitutes a guarantee. c. The subsequent discovery that a material misstatement exists in the financial statements is evidence of inadequate planning, performance, or judgment on the part of the auditor. d. The auditor should obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. 2. According to PSA 400 – Risk Assessments and Internal Control, audit risk means a. The susceptibility of an account balance or class of transactions to misstatement that could be material, individually or when aggregated with misstatements in other balances or classes, assuming that there were no related internal controls. b. The risk that a misstatement, that could occur in an account balance or class of transactions and that could be material, individually or when aggregated with misstatements in other balances or classes, will not be prevented or detected and corrected on a timely basis by the accounting and internal control systems. c. The risk that an auditor’s substantive procedures will not detect a misstatement that exists in an account balance or class of transactions that could be material, individually or when aggregated with misstatements in other balances or classes. d. The risk that the auditor gives an inappropriate audit opinion when the financial statements are materially misstated. 3. Inherent risk and control risk differ from detection risk in that they a. Arise from the misapplication of auditing procedures. b. May be assessed in either quantitative or nonquantitative terms. c. Exist independently of the financial statement audit. d. Can be changed at the auditor’s discretion. 4. Inherent risk and control risk differ from detection risk in that inherent risk and control risk are a. Elements of audit risk while detection risk is not. b. Changed at the auditor’s discretion while detection risk is not. c. Considered at the individual account-balance level while detection risk is not. d. Functions of the client and its environment while detection risk is not. 5. Which of the following is an incorrect statement? a. Detection risk is a function of the effectiveness of an auditing procedure and its application. b. Detection risk arises partly from uncertainties that exists when the auditor does not examine 100 percent of the population. c.
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This note was uploaded on 11/22/2010 for the course CAC BSA taught by Professor Kairus during the Spring '10 term at Korea University.

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AT-5909_risk assessment - Page 1 of 7 CPA REVIEW SCHOOL OF...

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