acct 241 ch 3

  1. Which of the following may cause management to intentionally understate profits?

    D. all of the above
  2. Which of the following is true.

    • C. auditors must specifically consider fraud risk from management
    • override of controls
  3. Auditors would perform the following steps in which order?

    • A. set audit risk; assess risk of material misstatement; calculate
    • detection risk
  4. Which of the following is not required by SAS No. 99, "Consideration of Fraud in a Financial Statement Audit"?

    • A. conduct inquireies of the audit committee as to their views about the
    • risks of fraud and their knowledge of any fraud or suspected fraud
  5. Inspection of tangible assets provides evidence for which assertion?

    D. existence
  6. The risk that the auditor may unknowingly fail to appropriately modify the opinion on financial statements that are materially misstated is referred to as

    A. audit risk
  7. If results from the auditor's tests of controls induce the auditor to change the assessed level of control risk for inventory from .2 to .4 and audit risk and inherent risk remain constant, what is the effect on the acceptable level of detection risk?

    B. detection risk would decrease from .4 to .2
  8. The auditor has assessed the risk of material misstatement to determine the acceptable level of detection risk for financial statement assertations for inventory account balances. As the acceptable level of detection risk decreases, which of the following adjustments to the accounts receivable audit program would the audit team normally make?

    B. increase the sample size of the confirmations
  9. Which of the following factors best define the materiality of audit risks?

    • B. volume of transactions, value of assets at risk & average value
    • per transaction
  10. With respect to management's accounting estimates, auditors are not for

    D. all of the above
  11. Auditors are not responsible for accounting estimates with respect to:

    B. making the estimates
  12. AICPA auditing standards do not require auditors of financial statements to:

    A. report all finding of errors and frauds to police authorities
  13. The risk that the auditors’ own work will lead to the decision that material misstatements do not exist in the financial statements, when in fact such misstatements do exist, is:

    A. detection risk
  14. Auditors are responsible for the quality of the work related to management and control of:

    C. detection risk
  15. The auditors assessed a combined inherent risk and control risk at 0.50 and said they wanted to achieve a 0.05 risk of failing to detect misstatements in an account equal to the $17,000 tolerable misstatement assigned to the account. What detection risk do the auditors plan to use for planning the remainder of the audit work?

    A. 0.10.
  16. An audit program contains:

    • A. specifications of procedures the auditors believe appropriate for the
    • financial statements under audit
  17. The revenue cycle of a company generally includes these accounts:

    B. cash, accounts receivable, and sales
  18. When auditing the existence assertion for an asset, auditors proceed from the:

    C. general ledger back to the supporting original transaction documents
  19. If tests of controls induce the auditor to change the assessed level of control risk for fixed assets from 0.4 to 1.0, and audit risk (.05) and inherent risk remain constant, the acceptable level of detection risk is most likely to:

    C. change from .25 to .1
  20. When financial statement auditors decide to carry out a response to a particular fraud risk in an account balance of class of transactions, they are most likely to:

    • D. perform procedures such as inventory observation and cash counts on a
    • surprise or unannounced basis
  21. It is appropriate and acceptable under generally accepted auditing standards for an auditor to:

    • A. assess both inherent and control risk at 100 percent and achieve an
    • acceptably low audit risk by performing extensive detection work
  22. Confirmations of accounts receivable provide evidence primarily about these two assertions:

    A. rights and obligations and existence
  23. If sales and income were overstated by recording a false credit sale at the end of the year, you could find the false “dangling debit” in the:

    A. accounts receivable
  24. One of the typical characteristics of management fraud is:

    • D. victimization of investors through the use of materially misleading
    • financial statements
  25. Under the Private Securities Litigation Reform Act, independent auditors are required to:

    • A. report to the SEC all instances of illegal acts they believe have a
    • material effect on financial statements if the board of directors does
    • not first report to the SEC
  26. With respect to the concept of materiality, which one of the following statements is correct?

    C. Materiality is a matter of professional judgment.
  27. Edison Corporation has a few large accounts receivable that a total $1,400,000. Victor Corporation has a great number of small accounts receivable that also total $1,400,000. The importance of a misstatement in any one account is therefore greater for Edison than for Victor. This is an example of the auditor’s concept of:

    B. materiality
  28. Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to afford a reasonable basis for an opinion?

    D. Auditor judgment.
  29. In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have a material effect on an entity’s income statement but that misstatements would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate:

    B. $10,000
  30. What assurance does the auditor provide that errors, fraud, and direct-effect illegal acts that are material to the financial statements will be detected?
    Errors Fraud Direct-Effect Illegal Acts

    B. Reasonable Reasonable Reasonable
Card Set
acct 241 ch 3
acct 241 ch 3