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Detection Risk, Tests, Controls, Assumptions, & Judgment: M/C

Please help me answer these:

1. An inaccurate form of the audit risk model would show that:
a. detection risk can be determined from audit risk, inherent risk, and control risk
b. detection risk is inversely related to audit risk
c. increases in control risk will cause decreases in detection risk
d. audit risk is directly related to all other risks in the model
e. detection risk is inversely related to inherent risk

2. When evaluating the planned level of substantive tests for each significant financial statement assertion, the auditor will consider the evidence obtained from all of the following except:
a. procedures to understand the business and industry and related analytical procedures that have been completed
b. evidence about the effectiveness of internal controls gained while obtaining an understanding of internal controls
c. the assessment of detection risk
d. the assessment of inherent risk
e. evidence of effectiveness of computer control procedures and related manual follow-up

3. In performing tests of details of balances, the auditor would obtain the bank statement directly from the bank, prepare the bank reconciliation, and verify all reconciling items and mathematical accuracy if detection risk was:
a. very high
b. high
c. moderate
d. low
e. very low

4. In performing tests of details of balances, the auditor would scan the client-prepared bank reconciliation, and verify the mathematical accuracy of the reconciliation if detection risk was:
a. very high
b. high
c. moderate
d. low
e. very low

5. Who is responsible for establishing the process and controls for preparing accounting estimates?
a. the independent auditor
b. the internal auditor
c. management
d. the audit committee
e. the controller

6. AU 342.09 explains that the auditor should normally concentrate on the key factors and assumptions used by management including all of the following except those that are:
a. insignificant to the accounting estimate
b. sensitive to variations
c. subject to misstatement and bias
d. deviations from historical patterns
e. susceptible to misstatement and bias

7. Revision of the planned level of detection risk will be necessary whenever:
a. accounts are affected by more than one transaction class
b. the multiple control risk assessments for the same account balance assertion differ
c. the lower assessed control risk approach is used
d. the final assessed control risk does not support the planned level
e. the final assessed control risk is not the same as the actual level

8. An auditor has computed the revised level of detection risk by direct use of the audit risk model. This means that the auditor must have:
a. assessed control risk at the maximum
b. used a flowchart to document the understanding of the complete internal control structure
c. used the primarily substantive approach in planning the audit
d. quantified all the relevant risk assessments
e. assessed detection risk at the minimum

9. Use of auditor judgment or of a risk matrix is necessary in revising planned detection risk whenever:
a. risk assessments are not quantified
b. assessed control risk at the account balance level does not support the planned level of control risk
c. control risk is assessed above the minimum
d. control risk is assessed below the maximum
e. tests of controls reveal substantial deviations from prescribed policies

10. The primary means by which the auditor meets the requirements of the third field work standard is through:
a. designing substantive tests
b. gathering evidence to support the assessed level of control risk
c. preparing a detailed audit program
d. evaluating the results of substantive tests
e. performing substantive tests

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ANSWERS

1. An inaccurate form of the audit risk model would show that:
b. detection risk is inversely related to audit risk.
AR= IR*CR*DR

2. When evaluating the planned level of substantive tests for each significant financial statement assertion, the auditor will consider the evidence obtained from all of the following except:
a. procedures to understand the business and industry and related analytical procedures that have been completed.
Analytical procedures are used in the planning and review stage

3. In performing tests of details of balances, the auditor would obtain the ...

Solution Summary

This solution assists with multiple choice questions regarding detection risk, tests, controls, assumptions, and judgment.

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