Chapter 4 Audit Risk, Busin - Chapter 4 Audit Risk Business...

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Chapter 4: Audit Risk, Business Risk, and Audit Planning Chapter 4: Audit Risk, Business Risk, and Audit Planning Student: ___________________________________________________________________________ 1. Risk is the uncertainty about events and/or their outcomes that could have a material effect on the organization. True False 2. Risk is cumulative. If business risk is extremely high, the auditor will likely make a decision to not be associated with a client because engagement risk will be too high. True False 3. To assess management's integrity, the auditor may interview management. True False 4. Controls are an accounting related object and do not extend beyond the accounting and finance activities. True False 5. An auditor must use professional judgment and skepticism when considering the subjective nature of some of the evidence that might be gathered and evaluated by the audit team. True False 6. A basic premise underlying analytical procedures is that implausible relationships among data may reasonably be expected to exist. True False 7. Ratio analysis only involves a year-to-year comparison of account balances. True False
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8. Trend analysis is proven to be more effective than ratio analysis. True False 9. Analytical techniques contain a combination of both quantitative and qualitative techniques. True False 10. Intentional manipulation of financial statements is a form of fraud. True False 11. Tour of the client's production facilities is not an acceptable method for an auditor in understanding the client's business processes. True False 12. Risk analysis does not include identifying risks associated with management's intent to misstate financial statements. True False 13. An auditor will typically evaluate their clients annually to determine whether to retain them or not. True False 14. Engagement risk is said to increase when a client suffers a business failure. True False 15. Prior year audit experience is not beneficial to an auditor in assessing management integrity because management may have different attitudes in subsequent periods. True False 16. The auditor is not concerned with illegal acts of clients because such acts are not within the scope of financial statement reporting. True False
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17. Audit risk is the risk that the auditor will be sued by the client because of fraudulent actions. True False 18. In an audit of financial statements, it is implied that absolute assurance will be provided. True False 19. The likelihood of misstatements in the financial statements increases if the client has poor internal control. True False 20. Actions to keep detection risk at a lower level are under the direct control of the auditor. True False 21. Control risk can be referred to as the client's ability to mitigate overall audit risk. True False 22. Management integrity and ethics have little to do with engagement risk.
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