AUDIT EXAM 2 STUDY GUIDE EXAM WITH CORRECT ANSWERS

AUDIT EXAM 2 STUDY GUIDE EXAM ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




WITH CORRECT ANSWERS ||\\||\\ ||\\||\\




BULLET POINT AND THEN ADD ALL ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




APPLICABLE QUIZ QUESTIONS BELOW! ||\\||\\ ||\\||\\ ||\\||\\




1. The Audit Risk Model
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(AR = IR x CR x DR) ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




T/F: The FIRST Phase of Audit Planning is Risk Assessment
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FALSE
The First Phase is Client Acceptance and continuance
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1. Client Acceptance + Continuance
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2. Preliminary Engagement activities
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3. Plan the Audit
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What is the Audit Risk Model? ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




Audit Risk = IR X CR X DR ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




OR
Audit Risk = RMM X DR ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




- IR = Inherent Risk
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,- CR = Control Risk
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Inherent Risk + Control Risk = Risk of Misstatement (RMM) ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




- DR = Detection Risk
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DR is only part of equation that auditor has control of
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T/F: Audit Risk is the auditor's exposure to loss or injury of their
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reputation from events arising in connection with financial ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




statements audited ||\\||\\




FALSE
This is Engagement Risk! (see below) ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




Audit Risk = the risk that the auditor expresses an inappropriate ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




opinion when the FS are materially misstated.
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T/F: Engagement Risk is the auditor's exposure to loss or injury
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of their reputation from events arising in connection with
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financial statements audited. ||\\||\\ ||\\||\\




TRUE
T/F: The components of the audit risk model include Inherent
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Risk, Control Risk, and Detection Risk. ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




TRUE

Also, Inherent Risk + Control Risk = Client Risk OR RMM (Risk of
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Material Misstatement!) ||\\||\\

, T/F: Inherent Risk is the susceptibility of an assertion to material
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misstatement, assuming no related controls.
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TRUE
T/F: This risk of a material misstatement includes Inherent risk
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and Sampling risk. ||\\||\\ ||\\||\\




FALSE
RMM (Risk of Material Misstatement) Includes Inherent Risk + ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




Control Risk ||\\||\\




T/F: The combination of Inherent Risk + Control Risk is referred
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to as client risk. ||\\||\\ ||\\||\\ ||\\||\\




TRUE
T/F: Inherent risk includes Sampling Risk +Detection Risk.
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FALSE
Q: Client Risk as defined in the text is:
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The Overall Risk of Material Misstatement (RMM) (see
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formula above) ||\\||\\




Q: The achieved (actual) Level of Audit Risk:
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Can NEVER be known with Certainty! ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\ ||\\||\\




- Is always used based on management's professional
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judgement