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ch 3 class solutions

ch 3 class solutions - SOLUTIONS FOR MULTIPLE-CHOICE...

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SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS 3.24 a. Incorrect This is the risk of giving an inappropriate opinion. b. Incorrect This is the risk of misstatements entering the accounting system. c. Incorrect This is the risk that the client's internal control will not detect misstatements that enter. d. Correct This is the risk that auditors will not detect misstatements. 3.26 b. Correct DR = AR/ (IRxCR) = 0.05/0.50 = 0.10 3.27 a. Incorrect An audit program does not specify audit standards. All the GAAS are relevant in all audits. b. Correct An audit program contains specifications of procedures the auditors believe appropriate for the financial statements under audit. c. Incorrect Documentation of the assertions under audit, the evidence obtained, and the conclusions reached describe audit documentation, not audit programs. d. Incorrect Reconciliation of the account balances in the financial statements with the account balances in the client's general ledger is one element of the content of audit documentation , not audit programs. 3.30 a. Incorrect While solving for DR works mathematically, you will find that IR (not given in the problem) has to be greater than 100%, therefore the solution is not possible. (Very tricky!) b. Incorrect If control risk rises, detection risk should decrease. c. Correct This solution is both mathematically and practically correct. d. Incorrect If control risk rises, detection risk should decrease. 3.31 a. Incorrect This is a type of “overall response”, not a “specific procedural response.” b. Incorrect Auditors ought to direct specific procedures toward the area where the suspicion lies.
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