ACP AUDITING - RISK BASED APPROACH
10th Edition
ISBN: 9780357195079
Author: JOHNSTONE
Publisher: CENGAGE C
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Question
Chapter 7, Problem 20MCQ
To determine
Introduction:
Inherent risks are the risks due to factors which are beyond the internal control of the organization. These risks arise in situations where there is a lot of subjectivity, judgment and estimation. Hence, inherent risks include factors which could threaten the fundamental financial viability of the organization.
To choose:The option which best describes the characteristics that would lead the auditor to assess inherent risk at a higher level for financial reporting at the financial statement level.
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Students have asked these similar questions
Which of the following are indicators of a high-risk or low-risk profile client? Explain?
Poor recent or forecast performance
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Conservative, prudent accounting policies
Competent, honest management
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Why do you think that inherent and control risk is responsible for the audited company(client) and detection risk belongs to auditors?
Which of the following is the least independent piece of information to collect about a company that is a potential M&A target?
A. Internal audits
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C. Audited financial statements
D. Relevant macroeconomics outlooks from an independent research organization
a. It is impossible for an auditor to "guarantee" that a company's finanical statements are free of all errors because the cost to the company to achieve absolute accuracy (even if that were possible) and the cost of the auditor's verfication would be prohibitively expensive. How does the auditors' opinion recognize this absence of absolute accuracy?
b. To what extent is the auditors' opinion an indicator of a company's future financial success and future cash dividends to stockholders?
Chapter 7 Solutions
ACP AUDITING - RISK BASED APPROACH
Ch. 7 - Prob. 1TFQCh. 7 - Prob. 2TFQCh. 7 - Prob. 3TFQCh. 7 - Prob. 4TFQCh. 7 - Prob. 5TFQCh. 7 - Prob. 6TFQCh. 7 - Prob. 7TFQCh. 7 - Prob. 8TFQCh. 7 - Prob. 9TFQCh. 7 - Prob. 10TFQ
Ch. 7 - Prob. 11TFQCh. 7 - Prob. 12TFQCh. 7 - Prob. 13TFQCh. 7 - In terms of the timing of the risk response, the...Ch. 7 - Prob. 15MCQCh. 7 - Prob. 16MCQCh. 7 - Prob. 17MCQCh. 7 - Prob. 18MCQCh. 7 - Prob. 19MCQCh. 7 - Prob. 20MCQCh. 7 - Prob. 21MCQCh. 7 - Prob. 22MCQCh. 7 - Prob. 23MCQCh. 7 - Prob. 24MCQCh. 7 - Prob. 25MCQCh. 7 - Prob. 26MCQCh. 7 - Prob. 27MCQCh. 7 - Prob. 28MCQCh. 7 - Prob. 29RSCQCh. 7 - Prob. 30RSCQCh. 7 - Define the following terms: (a) performance...Ch. 7 - Prob. 32RSCQCh. 7 - Prob. 34RSCQCh. 7 - Prob. 35RSCQCh. 7 - Prob. 36RSCQCh. 7 - How does inherent risk relate to internal...Ch. 7 - Prob. 38RSCQCh. 7 - Prob. 39RSCQCh. 7 - Prob. 40RSCQCh. 7 - Prob. 43RSCQCh. 7 - Prob. 45RSCQCh. 7 - Prob. 46RSCQCh. 7 - Prob. 47RSCQCh. 7 - Prob. 48RSCQCh. 7 - Prob. 49RSCQCh. 7 - Prob. 52RSCQCh. 7 - Prob. 53RSCQCh. 7 - Prob. 54RSCQCh. 7 - Prob. 55RSCQCh. 7 - Prob. 56RSCQCh. 7 - Prob. 57RSCQCh. 7 - Prob. 58FF
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Similar questions
- Which is not a Risk Assessment Procedure? a. Ratio Analysis b. Observation of Activities c. Account Receivable confirmations d. Inspection of Documents e. Inquiry of Internal Auditorsarrow_forwardWhich of the following situations would raise an auditor's concern about the risk of fraudulent reporting? Inability to generate positive cash flows from operations, while reporting large increases in earnings, Management's lack of interest in increasing the dividend paid on common stock, Large amounts of liquid assets that are easily convertible into cash, Inability to borrow necessary capital without obtaining waivers on debt covenantsarrow_forwardRefer to the Focus on Fraud feature Common Types of Earnings Management Techniques Involving Accounting Estimates. Why might it be difficult for auditors to disallow companies' preferences to decrease existing reserves? Explain the role of professional skepticism in the context of evaluating management's explanations for their accounting for reserves in this context.arrow_forward
- tch the type of risk with the related definition.A. Detection riskB. Control riskC. Inherent riskD. Audit risk___ 1. The probability that an auditor will give an inappropriate opinion on financial statements.___ 2. The probability that audit procedures will fail to produce evidence of material misstatements.___ 3. The probability that the client's internal control policies and procedures will fail to detect material misstatements if they have entered the accounting system.___ 4. The probability that material misstatements have occurred in transactions entering the accounting system.arrow_forwardCompanies of all sizes try to reduce business risks, create disaster recovery plans, and also purchase insurance for what they cannot completely control. Therefore, the business risk is the risk that: Select one: a.The auditor will give an inappropriate auditor’s opinion when the financial report is materially misstated b.The entity’s business objectives will not be attained due to the external and internal environment affecting the entity and the industry in which it operates. c. An error will occur given the environmental characteristics of the account balance. d.The auditor will be exposed to loss to their professional practice from litigation or adverse publicity arising in connection with an audit.arrow_forwardHaving an audit performed on the company's financial statements BEST illustrates which of the following? () Signalling Information asymmetry C Moral hazard Cheap talkarrow_forward
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