Audit final (Comprehensive)

Increased fraud risk could result in all of the following except:

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  lower detection risk.

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  higher inherent risk.

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  lower control risk.

•  

  higher client risk.

The achieved (actual) level of audit risk:

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  can always be accurately assessed by the auditor.

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  should be greater than or equal to acceptable audit risk.

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  can never be known with certainty.

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  is the same for all audit engagements.

Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements?

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  Turnover of senior accounting personnel is low.

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  Insiders recently purchased additional shares of the entity's stock.

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  Management places substantial emphasis on meeting earnings projections.

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  The rate of change in the entity's industry is slow.

The components of the audit risk model include inherent risk, control risk, and detection risk.

• True

• False

An auditor discovers a likely fraud during an audit but concludes that the overall effect of the fraud is not sufficiently material to affect the audit opinion. The auditor should probably:

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  disclose the fraud to the appropriate level of the client's management.

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  disclose the fraud to appropriate authorities external to the client.

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  discuss with the client the additional audit procedures that will be needed to identify the exact amount of the fraud.

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  modify the audit program to include tests specifically designed to identify the fraud and its impact on the financial statements.

The risk of material misstatement includes which of the following?

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  detection risk

•  

  audit risk

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  inherent risk

•  

  nonsampling risk

The risk that an auditor will conclude, based on substantive procedures, that a material error does not exist in an account balance when, in fact, such an error does exist is referred to as:

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  materiality risk.

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  detection risk.

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  control risk.

•  

  inherent risk.

As the acceptable level of detection risk decreases, the assurance directly provided from:

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  substantive procedures should increase.

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  substantive procedures should decrease.

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  tests of controls should increase.

•  

  tests of controls should decrease.

The auditor is most likely to presume that a high risk of a fraud relating to the misappropriation of assets exists if:

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  the entity is a multinational company that does business in numerous foreign countries.

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  the entity does business with several related parties.

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  inadequate segregation of duties places an employee in a position to perpetrate and conceal theft.

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  inadequate employee training results in lengthy EDP exception reports each month.

All of the following represent an increased opportunity for management to commit fraud except:

• All of the following represent an increased opportunity for management to commit fraud except:

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  the auditor's relationship with management is strained.

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  management is dominated by a single person.

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  the financial statements include highly subjective estimates.