Medium b when discussing control risk cr and the

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Unformatted text preview: on of ownership among the public. c. Nature and amount of liabilities. d. Amount of net income or loss after taxes. 38. medium a If an auditor believes the chance of financial failure is high and there is a corresponding increase in business risk for the auditor, acceptable audit risk would likely: a. be reduced. b. be increased. c. remain the same. d. be calculated using a computerized statistical package. 39. medium a When management has an adequate level of integrity for the auditor to accept the engagement but cannot be regarded as completely honest in all dealings, auditors normally: a. reduce acceptable audit risk and increase inherent risk. b. reduce inherent risk and control risk. c. increase inherent risk and control risk. d. increase acceptable audit risk and reduce inherent risk. 40. One accounting issue that does not require management to use significant judgments is: 1-165 medium b a. b. c. d. the allowance for doubtful accounts. the useful life of equipment for tax purposes. obsolete inventory. the liability for warranty payments. 41. medium d Inherent risk is often low for an account such as: a. inventory. b. marketable securities. c. cash. d. accounts receivable. 42. medium d The auditor typically does not assess control risk and inherent risk for: a. each audit objective. b. each cycle. c. each account. d. the overall audit. 43. (Public) medium a To what extent do auditors typically rely on internal controls of their public company clients? a. Extensively b. Only very little c. Infrequently d. Never 44. medium b Auditors typically rely on internal controls of their private company clients: a. Only as needed to complete the audit and satisfy Sarbanes-Oxley requirements. b. Only if the controls are determined to be effective. c. Only if the client asks an auditor to test controls. d. Only if the controls are sufficient to increase Control Risk to an acceptable level. 45. medium a Acceptable audit risk is ordinarily set by the auditor during planning and: a. held constant for each major cycle and account. b. held constant for each major cycle but varies by account. c. varies by each major cycle and by each account. d. varies by each major cycle but is constant by account. 46. medium d When the auditor is attempting to determine the extent to which external users rely on a client’s financial statements, they may consider several factors except for: a. client size. b. concentration of ownership. c. types and amounts of liabilities. d. assessment of detection risk. 47. medium b A major difficulty in the application of the audit risk model is: a. defining the terms of the model. b. measuring the components of the model. c. understanding the effect on other factors in the model when one factor is changed. d. the failure of the Audit Standards Board to accept it and incorporate it into standards. 48. medium a When setting a preliminary judgment about materiality: a. more evidence is required for a low dollar amount than for a high dollar amount. b. less evidence is required for a low dollar amount than for a high dollar amount. c. the same amount of evidence is required for either low or high dollar amounts. d. there is no relationship between it and the dollar amount of evidence needed. 49. challenging b When allocating materiality, most practitioners choose to allocate to: a. the income statement accounts because they are more important. b. the balance sheet accounts because there are fewer. 1-166 c. d. both balance sheet and income statement accounts because there could be errors on either. all of the financial statements because there could be errors on other statements besides the income statement and balance sheet. 50. challenging c The risk of material misstatement refers to: a. control risk and acceptable audit risk. b. inherent risk. c. the combination of inherent risk and control risk. d. inherent risk and audit risk. 51. Auditors may assess inherent risk and control risk: medium a a. b. c. d. Jointly to determine the risk of material misstatement Yes No Yes No Separately and combine their effects in the audit risk model Yes No No Yes 52. challenging c Which one of the following statements about the cycle approach to auditing is not correct? a. There are differences among cycles in the frequency and size of expected errors. b. There are differences among cycles in the effectiveness of internal controls. c. There are differences among cycles on the auditor’s willingness to accept risk that material errors exist after the auditing is complete. d. It is common for auditors to want an equally low likelihood of errors for each cycle after the auditor is finished. 53. challenging a When the auditor has the same level of willingness to risk that material misstatements will exist after the audit is finished for all financial statement cycles: a. a different extent of evidence will likely be needed for various cycles. b. the same amount of evidence will be gathered for each cycle. c. the auditor has not followed generally accepted auditing sta...
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