Audit Risks and Materiality Sample Questions

4444 Words Feb 16th, 2013 18 Pages
Audit Risk and Materiality

MULTIPLE CHOICE:

1. An auditor compares 2002 revenues and expenses with those of the prior year and investigates all changes exceeding 10%. By this procedure the auditor would be most likely to learn that a. An increase in property tax rates has not been recognized in the client 's accrual. b. The 2002 provision for uncollectible accounts is inadequate, because of worsening economic conditions. c. Fourth quarter payroll taxes were not paid. d. The client changed its capitalization policy for small tools in 2002.

ANSWER: D

2. The element of the audit planning process most likely to be agreed upon with the client before implementation of
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Managers subject to formal performance reviews on a regular basis.

ANSWER: D

9. Which of the following underlies the application of generally accepted auditing standards, particularly the standards of field work and reporting? a. The elements of materiality and relative risk. b. The element of internal control. c. The element of corroborating evidence. d. The element of reasonable assurance.

ANSWER: A

10. Which of the following is not a purpose served by the application of analytical procedures?

a. As part of audit planning to assist in locating significant changes in revenues and expenses. b. To provide a basis for lowering materiality thresholds where significant earnings inflation is indicated. c. To determine the economic substance of related party transactions. d. As part of audit review to determine that all significant abnormalities have been resolved to the auditor 's satisfaction.

ANSWER: C

11. The probability of an auditor 's procedures leading to the conclusion that a material error does not exist in an account balance when, in fact, such error does exist is referred to as a. Prevention risk. b. Inherent risk. c. Control risk. d. Detection risk.

ANSWER: D

12. Which of the following concepts is most useful in assessing the scope of an auditor 's program
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