Question 1

The risk that audit evidence for a segment will fail to detect misstatements exceeding performance materiality levels is:

Accepted Answer

A)  audit risk.
B)  control risk.
C)  inherent risk.
D)  planned detection risk.E) B) and C)
F) A) and D)

Question 2

Inherent risk and control risk:

Accepted Answer

A)  are inversely related to each other.
B)  are inversely related to detection risk.
C)  are directly related to detection risk.
D)  are directly related to audit risk.E) C) and D)
F) B) and C)

Question 3

Which of the following statements regarding inherent risk is correct?

Accepted Answer

A)  Inherent risk is unaffected by the auditor's experience with client's organization.
B)  Most auditors set a low inherent risk in the first year of an audit and increase it if experience shows that it was incorrect.
C)  Most auditors set a high inherent risk in the first year of an audit and reduce it in subsequent years as they gain more knowledge about the company.
D)  Inherent risk is dependent upon the strengths in client's internal control system.E) B) and D)
F) None of the above

Question 4

If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No.2:

Accepted Answer

A)  material.
B)  insignificant.
C)  significant.
D)  relevant.E) C) and D)
F) A) and B)

Question 5

Qualitative factors can affect an auditor's assessment of materiality.Which of the following statements is true?
I.Misstatements that are otherwise immaterial may be material if they affect earnings trends.
II.Misstatements that are otherwise minor may be material if there are possible consequences arising from contractual obligations.

Accepted Answer

A)  I only
B)  II only
C)  I and II
D)  neither I nor IIE) A) and D)
F) All of the above

Question 6

Total estimated misstatements include known misstatements and projected misstatements plus a sampling error.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  increase.
B)  decrease.
C)  remain unchanged.
D)  be indeterminate.E) A) and D)
F) C) and D)

Question 8

Engagement risk is effectively the audit firm's business risk.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following audit risk components may be assessed in non-quantitative terms?

Accepted Answer

A)   
B)   
C)   
D)   E) B) and C)
F) All of the above

Question 10

The lower the dollar amount of the preliminary judgment the more audit evidence is required.

Accepted Answer

A) True 
 B)False

Question 11

If an auditor assigns a tolerable misstatement of $1,000 to accounts payable, he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned.

Accepted Answer

A) True 
 B)False

Question 12

In a financial statement audit, inherent risk is evaluated to help an auditor asses which of the following?

Accepted Answer

A)  The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee
B)  The risk the internal control system will not detect a material misstatement of a financial statement assertion
C)  The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion
D)  The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controlsE) All of the above
F) None of the above

Question 13

Why do auditors establish a preliminary judgment about materiality?

Accepted Answer

A)  To determine the appropriate level of staff to assign to the audit
B)  So that the client can know what records to make available to the auditor
C)  To help plan the appropriate evidence to accumulate
D)  To finalize the control risk assessmentE) C) and D)
F) A) and D)

Exam 9: Materiality and Risk

If an auditor assigns a tolerable misstatement of $1,000 to accounts payable, he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned.

Correct Answer
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If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No.2:

Correct Answer
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Engagement risk is effectively the audit firm's business risk.

Correct Answer
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If planned detection risk is reduced, the amount of evidence the auditor accumulates will:

Correct Answer
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Correct Answer
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The risk that audit evidence for a segment will fail to detect misstatements exceeding performance materiality levels is:

Correct Answer
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Why do auditors establish a preliminary judgment about materiality?

Correct Answer
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Which of the following audit risk components may be assessed in non-quantitative terms?

Correct Answer
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Which of the following statements regarding inherent risk is correct?

Correct Answer
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In a financial statement audit, inherent risk is evaluated to help an auditor asses which of the following?

Correct Answer
verified

The lower the dollar amount of the preliminary judgment the more audit evidence is required.

Correct Answer
verified

Total estimated misstatements include known misstatements and projected misstatements plus a sampling error.

Correct Answer
verified

Inherent risk and control risk:

Correct Answer
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Exam 9: Materiality and Risk

If an auditor assigns a tolerable misstatement of $1,000 to accounts payable, he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned.

Correct AnswerverifiedShow Answer

If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No.2:

Correct AnswerverifiedShow Answer

Engagement risk is effectively the audit firm's business risk.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The risk that audit evidence for a segment will fail to detect misstatements exceeding performance materiality levels is:

Correct AnswerverifiedShow Answer

Why do auditors establish a preliminary judgment about materiality?

Correct AnswerverifiedShow Answer

Which of the following audit risk components may be assessed in non-quantitative terms?

Correct AnswerverifiedShow Answer

Which of the following statements regarding inherent risk is correct?

Correct AnswerverifiedShow Answer

In a financial statement audit, inherent risk is evaluated to help an auditor asses which of the following?

Correct AnswerverifiedShow Answer

The lower the dollar amount of the preliminary judgment the more audit evidence is required.

Correct AnswerverifiedShow Answer

Total estimated misstatements include known misstatements and projected misstatements plus a sampling error.

Correct AnswerverifiedShow Answer

Inherent risk and control risk:

Correct AnswerverifiedShow Answer

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