D relative audit costs affect the allocation 21

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Unformatted text preview: _______ related to detection risk and _______ related to the amount of audit evidence. a. directly, inversely b. directly, directly c. inversely, inversely d. inversely, directly 24. medium b The five steps in applying materiality are listed below in random order. 1. Estimate the combined misstatement. 2. Estimate the total misstatement in the segment. 3. Set preliminary judgment about materiality. 4. Allocate preliminary judgment about materiality to segments. 5. Compare combined estimate with preliminary judgment about materiality. The correct sequence from start to finish would be: a. 1 2 5 4 3. b. 3 4 2 1 5. c. 4 3 1 5 2. d. 5 1 3 2 4. 25. medium b Which of the following statements is not correct? a. Materiality is a relative rather than an absolute concept. b. The most important base used as the criterion for deciding materiality is total assets. c. Qualitative factors as well as quantitative factors affect materiality. 1-163 d. Given equal dollar amounts, frauds are usually considered more important than errors. 26. medium a Since materiality is relative, it is necessary to have bases for establishing whether misstatements are material. Normally, the most common base for deciding materiality is: a. net income before taxes. b. net working capital. c. net income after taxes. d. total assets. 27. medium a Certain types of misstatements are likely to be more important than other types to users, even if the dollar amounts are the same. Which of the following demonstrates this? a. b. c. d. Amounts involving frauds are considered more important than errors of equal amount Yes No Yes No Misstatements that are otherwise immaterial may be material if they affect a trend in earnings. Yes No No Yes 28. medium b Allocating the preliminary judgment about materiality to financial statements segments is necessary because: a. evidence is accumulated for the financial statements as a whole so materiality does not apply to them. b. evidence is accumulated by segments rather than for the financial statements as a whole. c. it is required by the AICPA’s Code of Professional Conduct. d. it is required by the SEC. 29. medium c Which of the following statements is not correct? a. Either an overstatement of an asset account or an understatement of a liability account would have the same effect on the income statement. b. A misclassification in the balance sheet will have no effect on operating income. c. Either an overstatement of an asset account or an overstatement of a liability account would have the same effect on the income statement. d. Either an understatement of an asset account or an overstatement of a liability account would have the same effect on the income statement. 30. medium d Regardless of how the preliminary judgment about materiality is allocated, the auditor must be confident that total combined misstatements in all accounts are: a. less than the preliminary judgment. b. equal to the preliminary judgment. c. more than the preliminary judgment. d. less than or equal to the preliminary judgment. 31. medium c Auditors frequently refer to the terms audit assurance, overall assurance, and level of assurance to refer to ________. a. detection risk b. audit report risk c. acceptable audit risk d. inherent risk 32. medium c _____ misstatements are those where the auditor can determine the amount of the misstatement in the account. a. Potential b. Likely c. Known d. Projected 1-164 33. medium d When a different extent of evidence is needed for the various cycles, the difference is caused by: a. errors in the client’s accounting system. b. a client’s need to achieve an unqualified opinion. c. an auditor’s need to follow auditing standards. d. an auditor’s expectations of errors and assessment of internal control. 34. medium a If planned detection risk is reduced, the amount of evidence the auditor accumulates will: a. increase. b. decrease. c. remain unchanged. d. be indeterminate. 35. Medium a Likely misstatements can result from: a. b. c. d. Differences between management’s and an auditor’s judgment about account balances Yes Yes No No Computation of the sampling error for the cash account No Yes No Yes Projections of misstatements based on an auditor’s tests of a sample from a population Yes No Yes No 36. medium b When discussing control risk (CR) and the audit risk model, which of the following is false? a. CR is a measure of the auditor’s assessment of the likelihood that misstatements will not be prevented or detected by internal control. b. If the auditor concludes that internal control is completely ineffective to prevent or detect errors, he/she would assign a low value (e.g., 0%) to CR. c. The relationship between control risk and detection risk is inverse. d. The relationship between control risk and evidence needed to support account balances is direct. 37. medium d Which of the following is not a good indicator of the degree to which statements are relied on by external users? a. Client’s size, as measured by total assets or total revenue. b. Distributi...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.

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