ACCN 7110 EXAM 2 STUDY GUIDE (LATEST UPDATE) REAL
QUESTIONS AND VERIFIED ANSWERS |100% CORRECT |
ALREADY GRADED A
audit risk is best defined as what? Ans✓✓✓the risk that an auditor
expresses inappropriate audit opinion when the financial statements are
materially misstated
misstatements that impact a user's decision-making process for a reason
other than its magnitude constitute __ materiality Ans✓✓✓qualitative
what term is an amount set by the auditor that is used to make decisions
about the extent of audit procedures for a particular class of transaction,
account balance, or disclosure? Ans✓✓✓performance materiality
from a definitional perspective, information is considered material if
what happens? Ans✓✓✓it impacts the decision-making process of users
of the financial statements
in addition to income before income taxes, another common
benchmark(s) for determining planning materiality for private company
audits is(are) what? Ans✓✓✓total assets and total revenues
if auditors determine a higher planning materiality level, they will plan
to gather __ extensive audit evidence Ans✓✓✓less
,the auditor can set detection risk as high if what happens?
Ans✓✓✓inherent risk and control risk are both low
what is control risk? Ans✓✓✓the risk that a client's internal controls
will not prevent or detect a material misstatement on a timely basis
in a financial statement audit, inherent risk is evaluated to help an
auditor assess what? Ans✓✓✓the susceptibility of a financial statement
assertion to a material misstatement assuming there are no related
controls
which of the following is an example of fraudulent financial reporting?
a) the treasurer diverts customer payments to his personal use,
concealing his actions by debiting an expense account, this overstating
expenses
b) an employee steals inventory and the "shrinkage" is recorded in cost
of goods sold
c) company management improperly records as revenue the proceeds of
a loan
d) an employee bills his company for products not received, using the
name of a fictitious supplier Ans✓✓✓c) company management
improperly records as revenue the proceeds of a loan
what term refers to the determination of the amount of time to spend
testing the client's internal controls and conducting detailed testing of
transactions and account balances? Ans✓✓✓audit strategy
,developing an audit strategy is typically accomplished in what phase?
Ans✓✓✓planning --> risk assessment phase
an audit plan details the nature, extent, and timing of audit procedures to
be performed. the "timing" of audit procedures is best defined as what?
Ans✓✓✓when the procedure will be performed
the determination of when audit procedures will be performed is
primarily dependent upon what? Ans✓✓✓the effectiveness of the
client's controls
substantive procedures are designed to do what? Ans✓✓✓detect
material misstatement at the assertion level
in the substantive approach, if there is no internal control in place and
inherent risk is high, the auditors do what? Ans✓✓✓assess RMM as
high since both inherent risk and control risk are high
the sufficiency of audit evidence refers to the ___ Ans✓✓✓quantity of
audit evidence gathered
the appropriateness of audit evidence refers to the ___ Ans✓✓✓quality
of audit evidence gathered
, the amount of evidence that an auditor must collect is a function of ___
Ans✓✓✓the risk of material misstatement in a relevant assertion for an
account balance class of transactions
an auditors' evaluation of financial information by studying plausible
relationships among both financial and non-financial data is referred to
as ___ Ans✓✓✓analytical procedures
what provides evidence for the occurrence assertion? Ans✓✓✓vouching
a common audit procedure that involves watching a process or
procedure being carried out by client personnel or another party is
known as what? Ans✓✓✓observation
when an auditor asks questions verbally or in written form of
knowledgeable individuals internal to the client, this is referred to as
what? Ans✓✓✓inquiry
which of the following are included in the permanent file and not in the
current file?
a) correspondence with other auditors and specialists
b) extracts from the minutes of meetings
c) all testing and evidence gathered in preparation of the audit report
d) debt covenants Ans✓✓✓d) debt covenants
QUESTIONS AND VERIFIED ANSWERS |100% CORRECT |
ALREADY GRADED A
audit risk is best defined as what? Ans✓✓✓the risk that an auditor
expresses inappropriate audit opinion when the financial statements are
materially misstated
misstatements that impact a user's decision-making process for a reason
other than its magnitude constitute __ materiality Ans✓✓✓qualitative
what term is an amount set by the auditor that is used to make decisions
about the extent of audit procedures for a particular class of transaction,
account balance, or disclosure? Ans✓✓✓performance materiality
from a definitional perspective, information is considered material if
what happens? Ans✓✓✓it impacts the decision-making process of users
of the financial statements
in addition to income before income taxes, another common
benchmark(s) for determining planning materiality for private company
audits is(are) what? Ans✓✓✓total assets and total revenues
if auditors determine a higher planning materiality level, they will plan
to gather __ extensive audit evidence Ans✓✓✓less
,the auditor can set detection risk as high if what happens?
Ans✓✓✓inherent risk and control risk are both low
what is control risk? Ans✓✓✓the risk that a client's internal controls
will not prevent or detect a material misstatement on a timely basis
in a financial statement audit, inherent risk is evaluated to help an
auditor assess what? Ans✓✓✓the susceptibility of a financial statement
assertion to a material misstatement assuming there are no related
controls
which of the following is an example of fraudulent financial reporting?
a) the treasurer diverts customer payments to his personal use,
concealing his actions by debiting an expense account, this overstating
expenses
b) an employee steals inventory and the "shrinkage" is recorded in cost
of goods sold
c) company management improperly records as revenue the proceeds of
a loan
d) an employee bills his company for products not received, using the
name of a fictitious supplier Ans✓✓✓c) company management
improperly records as revenue the proceeds of a loan
what term refers to the determination of the amount of time to spend
testing the client's internal controls and conducting detailed testing of
transactions and account balances? Ans✓✓✓audit strategy
,developing an audit strategy is typically accomplished in what phase?
Ans✓✓✓planning --> risk assessment phase
an audit plan details the nature, extent, and timing of audit procedures to
be performed. the "timing" of audit procedures is best defined as what?
Ans✓✓✓when the procedure will be performed
the determination of when audit procedures will be performed is
primarily dependent upon what? Ans✓✓✓the effectiveness of the
client's controls
substantive procedures are designed to do what? Ans✓✓✓detect
material misstatement at the assertion level
in the substantive approach, if there is no internal control in place and
inherent risk is high, the auditors do what? Ans✓✓✓assess RMM as
high since both inherent risk and control risk are high
the sufficiency of audit evidence refers to the ___ Ans✓✓✓quantity of
audit evidence gathered
the appropriateness of audit evidence refers to the ___ Ans✓✓✓quality
of audit evidence gathered
, the amount of evidence that an auditor must collect is a function of ___
Ans✓✓✓the risk of material misstatement in a relevant assertion for an
account balance class of transactions
an auditors' evaluation of financial information by studying plausible
relationships among both financial and non-financial data is referred to
as ___ Ans✓✓✓analytical procedures
what provides evidence for the occurrence assertion? Ans✓✓✓vouching
a common audit procedure that involves watching a process or
procedure being carried out by client personnel or another party is
known as what? Ans✓✓✓observation
when an auditor asks questions verbally or in written form of
knowledgeable individuals internal to the client, this is referred to as
what? Ans✓✓✓inquiry
which of the following are included in the permanent file and not in the
current file?
a) correspondence with other auditors and specialists
b) extracts from the minutes of meetings
c) all testing and evidence gathered in preparation of the audit report
d) debt covenants Ans✓✓✓d) debt covenants
