If planned detection risk is reduced, the amount of evidence the auditor accumulates will decrease.

Inherent risk and control risk are inversely related to each other

The risk of material misstatement refers to the combination inherent risk and control risk

In a financial statement audit, inherent risk is evaluated to help an auditor assess the susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls.

Inherent risk is inversely related to the amount of audit evidence whereas detection risk is directly related to the amount of audit evidence required

Inherent risk is directly related to the amount of evidence whereas detection risk is directly related to the amount of audit evidence required.

Inherent risk and control risk are assessed by the auditor and function independently of the financial statement audit

As the acceptable level of detection risk increases, an auditor may change the timing of the tests on controls by performing them throughout the year rather than at one time.

As the acceptable level of detection risk increases, an auditor may change the timing of substantive tests by performing them at an interim date rather than year end.

The risk that an auditor will conclude, based on substantive tests, that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as detection risk.

When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the level of detection risk.

The risk of material misstatement includes non-sampling risk.

As the acceptable level of detection risk decreases, an auditor may change the nature of substantive procedures from less effective to more effective procedures.

As the acceptable level of detection risk decreases, the assurance directly provided from substantive procedures should increase.

Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments.

The documentation of an auditor’s understanding of internal controls must include flowcharts.

To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques including confirmation.

Reports on service organization typically provide reasonable assurance that their financial statements are free of material misstatements.

Where computer processing is used in significant accounting applications, internal control activities may be defined by classifying control activities into two types: general and application.

Based on the requirement of PSA 3330, how frequently must an auditor test operating effectiveness of controls that appear to functions as they have in past years and on which the auditor wishes to rely in the current year?

An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing and extent of the

Which of the following is not a medium that can normally be used by an auditor to record information concerning a client’s internal control policies and procedures?

When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be:

Which of the following best describes the purpose of the control activities?

Proper segregation of functional responsibilities in an effective structure of internal control calls for separation of functions of

Which of the following is not one of the specific control activities that are relevant to financial statement audit?

The policies and procedures that help ensure that management directives are carried out are referred to as the:

Which of the following deal with ongoing or periodic assessment of quality of internal control by management?

Which of the following is not one of the subcomponents of the control environment?

Which of the following subcomponents of the control environment define the existing lines of responsibility and authority?

Which of the following components of an entity’s internal control structure includes the development of employee promotion and training policies?

In evaluating the design of the entity’s internal control environment, the auditor considers the certain subcomponents of control environment and how they have been incorporated into the entity’s processes. Subcomponents of control environment would include

The overall attitude and awareness of an entity’s board of director concerning the importance of the internal control usually is reflected in its

Which of the following is not one of the components of an entity’s internal control?

An act of two or more employee to steal assets and cover their theft by misstating the accounting records would be referred to as:

Which of the following internal control objectives would be most relevant to the audit?

Which of the following is not one of the three primary objectives of effective internal control?

The fundamental purpose of an internal control is to

The primary responsibility for establishing and maintaining an internal control rests with

The objective and scope of the audit and the extent of the auditor’s responsibilities to the client are best documented in a(n)

Which of the following is not a valid reason why an auditor sends to his client an engagement letter?

The secondary purpose of the engagement letter is to:

S1:The engagement letter will include identification of significant dates throughout the engagement

S2: The engagement letter will inform the client about the audit procedures to be performed.

Which of the following procedures is performed primarily during audit planning?

Which of the following is not a risk assessment procedure?

S1

materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments.

S2

An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements.

S1

Analytical procedures are required to be used in planning a financial statement audit.

S2

Analytical procedures are required to be used all throughout the audit

S1

In a financial statement audit, audit risk represents the probability that internal controls fail and the failure is not detected by the auditor’s procedures.

S2

Audit risk may be eliminated by 100% testing of the items in the population

In a financial statement audit, detection risk represents:

This involves developing an overall strategy for the expected conduct and scope of the examination; the nature, extent, and timing of which vary with the size and complexity, and experience with and knowledge of the entity.

Initial planning involves four matters. Which of the following is not one of these?

A CPA is conducting the first examination of a client’s financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor’s working papers. This procedure is

The preliminary judgment about materiality and the amount of audit evidence accumulated are related.

According to PSA 320, materiality should be considered by the auditor when:

Which of the following statements is not correct about materiality?

“Performance materiality” is the term used to indicate materiality at the:

When comparing level of materiality used for planning purposes and the level of materiality used for evaluating evidence, one would most likely expect

Qualitative factors can affect an auditor’s assessment of materiality. Which of the following qualitative factors could influence the assessment of materiality?

I. Misstatements that are otherwise immaterial may be material if affect earnings trends.

II. Minor misstatements resulting from the consequences of contractual obligations.

Auditors frequently refer to the terms audit assurance, overall assurance, ad level of assurance to refer to

The risk that financial statements are likely to be misstated materially without regard to the effectiveness of internal control is the;

When planning a financial statement audit, the auditor should assess inherent risk at the

Which of the following is an incorrect statement?

Relationship between control risk and detection risk is ordinarily

Which of the following is not correct regarding an auditor’s decision that a lower acceptable audit risk is appropriate?

These consist of the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predictable amounts.

Which of the following statements about analytical procedures is incorrect?

In developing the overall audit plan and audit program, the auditor should assess inherent risk at the:

An auditor should design the written audit program so that

Which of the following matters would least likely appear in the audit program?

In evaluating internal control, the auditor is basically concerned that the system provides reasonable assurance that operational efficiency has been achieved in accordance with management plans

The maintenance of the system of internal control is an important responsibility of the internal auditor

Because of the cost/benefit relationship, test of controls maybe applied on a test basis in some circumstances

The concept of reasonable assurance in the context of an entity's internal controls recognizes that auditors may fail to detect material misstatements

An effective control environment guarantees that all controls are followed as prescribed

The risk assessment component of internal controls refers to the auditor's assessment of control risk

Assessing control risk at below the maximum would involve identifying specific internal controls relevant to specific assertions

In the audit of financial statements, an auditor's primary consideration regarding an internal control policy or procedure is whether the policy or procedure affects management's financial statement assertions

As part of gaining an initial understanding of internal control, an auditor is required to obtain knowledge about the operating effectiveness of the internal control

Assessing control risk below maximum involves concluding that controls are ineffective

After the auditor has prepared a flowchart of the internal controls surrounding sales and evaluated the design of the system, the auditor would perform tests of controls on all control activities documented in the flowchart

Observation is a procedure that would most likely be used by an auditor in performing tests of control activities that involve segregation of functions and functions and that leave no transaction trail

Tracing bills of lading to sales invoices provides evidence that billed sales were shipped

Tracing copies of sales invoices to shipping documents will provide evidence that all shipments to customers were billed

The accounts payable department receives the purchase order form to ensure that the goods had been received by the party requesting the goods

The authority to accept incoming goods in receiving should be based on an approved purchase order

For effective internal control purposes, the vouchers payable department generally should stamp, perforate, or otherwise cancel supporting documentation after payment is mailed

Vendors' statements and vendors' invoices are both relatively reliable evidence because they originate from a third party

Credit memos are normally issued to adjust the customers balance to the amount owed to the company

The document that the accounting staff will use as the primary basis for recording sales transactions and updating the customers accounts receivable subsidiary ledger is the sales invoice

PSA 315 (Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment) requires the auditor to perform risk assessment procedures at

The auditor's risk assessment procedures should always include the following, except

The auditor's risk assessment procedures

The auditor should obtain an understanding of the entity's objectives and strategies, and those business risks that may result in risks of material misstatement. Which of the following statements concerning the entity's business risk is incorrect?

The risk that the auditor may give an inappropriate opinion when the financial statements are materially misstated is called

Audit risk has three components: inherent risk, control risk, and detection risk. Which is correct?

The risk that an auditor's substantive procedures will lead to the conclusion that a material misstatement does not exist in an account balance or transaction class when, in fact, such misstatement does exist is

The existence of audit risk is recognized by the statement in the auditor's report that the

There is an inverse relationship that exists between the acceptable level of detection risk and the

Which of the following statements concerning audit risk and its components is incorrect?