A true b false 78 easy b if acceptable audit risk is

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Unformatted text preview: r believes the client will have financial difficulties after the audit report is issued, and external users will be relying heavily on the financial statements, the auditor will probably set acceptable audit risk as low. a. True b. False 84. medium b Achieved detection risk can be reduced only by accumulating more audit evidence. a. True b. False 85. medium a Auditors have difficulty applying the concept of materiality in practice because they often do not know who the users of the financial statements are or what decisions will be made. a. True b. False 86. medium b The audit risk model that must be used for planning audit procedures and evaluating audit results is: AcAR = IR x CR x AcDR. a. True b. False 1-175 87. medium b Statements on Auditing Standards provide detailed, objective guidance on how auditors are to establish a preliminary materiality level, thus eliminating the need for subjective auditor judgment in this task. a. True b. False 88. medium b If the preliminary judgment of materiality increases, the amount of audit evidence required will also increase. a. True b. False 89. medium b Insert risk and control risk are normally assessed for the overall audit. a. True b. False 90. medium b Tolerable misstatement is the maximum combined total of all misstatements in the financial statements that the auditor is willing to allow, or tolerate, when issuing a standard unqualified opinion. a. True b. False 91. medium a If an auditor assigns a tolerable misstatement of $1,000 to accounts payable, he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned. a. True b. False 92. medium a To maximize audit efficiency, the auditor should allocate less tolerable misstatement to accounts that can be verified by using low-cost audit procedures, such as analytical procedures, than to accounts that are more costly to audit. a. True b. False 93. medium b To maximize audit effectiveness, the auditor should establish a high preliminary judgment about materiality and allocate most of the amount to balance sheet accounts. a. True b. False 94. medium a Acceptable audit risk and the amount of substantive evidence required are inversely related. a. True b. False 95. medium a As control risk increases, the amount of substantive evidence the auditor plans to accumulate should increase. a. True b. False 96. medium b Inherent risk and control risk are directly related. a. True b. False 1-176 97. medium a An acceptable audit risk assessment of low indicates a risky client requiring more extensive evidence, assignment of more experienced personnel, and/or a more extensive review of audit files. a. True b. False 98. medium a Engagement risk is effectively the audit firm’s business risk. a. True b. False 99. medium b Audit assurance is the complement of planned detection risk, that is, one minus planned detection risk. a. True b. False 1-177...
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