AUD — Auditing & Attestation — Quiz 2

Questions in this quiz (8)

1. Which of the following best describes control risk?

   • The risk that audit procedures will fail to detect a misstatement
   • The risk that internal controls will not prevent or detect a misstatement
   • The risk that financial statements are misstated after the audit
   • The risk that an account is inherently susceptible to misstatement

2. An auditor is evaluating accounts receivable for a client with weak credit policies and frequent write-offs. The client has strong internal controls over billing and collections. What is the likely assessment?

   • Low inherent risk, high control risk
   • High inherent risk, low control risk
   • High inherent risk, high control risk
   • Low inherent risk, low control risk

3. Which of the following best describes detection risk?

   • The risk that internal controls fail
   • The risk that auditors will not detect a material misstatement
   • The susceptibility of an account to misstatement
   • The overall risk of issuing an incorrect opinion

4. An auditor is planning procedures for revenue in a company with complex contracts and estimates. Internal controls are poorly designed. What is the most appropriate audit response?

   • Reduce substantive testing
   • Increase reliance on controls
   • Perform extensive substantive procedures
   • Eliminate testing of revenue

5. Which factor most directly increases inherent risk?

   • Strong internal audit function
   • Complex accounting estimates
   • Effective segregation of duties
   • Automated controls

6. An auditor is assessing inventory in a stable industry with simple valuation methods, but controls over inventory counts are weak. What is the likely assessment?

   • Low inherent risk, high control risk
   • High inherent risk, low control risk
   • High inherent risk, high control risk
   • Low inherent risk, low control risk

7. An auditor sets materiality at 200,000 dollars and performance materiality at 150,000 dollars. Why is performance materiality lower?

   • To increase audit fees
   • To account for aggregation of misstatements
   • To eliminate audit risk
   • To comply with GAAP

8. An auditor identifies a small misstatement that is below materiality but was intentionally made by management. What should the auditor do?

   • Ignore the misstatement
   • Consider qualitative factors and possibly require adjustment
   • Automatically issue a qualified opinion
   • Reduce audit procedures