Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 7, Problem 25MCQ
To determine
Introduction: It is about the appropriate interpretation of the level of audit risk.
To choose: Select the appropriate statement about the appropriate interpretation of the audit risk when the auditor sets the audit risk at 1%
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The auditors assessed risk of material misstatement at 0.50 and said they wanted to achieve a0.05 risk of failing to express a correct opinion on financial statements that were materiallymisstated. What detection risk do the auditors plan to use for planning the remainder of theaudit work?a. 0.20.b. 0.10.c. 0.75.d. 0.00
Which of the following is a correct statement regarding audit evidence?
a.
A large sample of evidence provided by an independent party is always considered persuasive evidence.
b.
The auditor must obtain a sufficient amount of relevant and reliable evidence to form an opinion on the fairness of the financial statements.
c.
A small sample of only one or two pieces of highly appropriate evidence is always considered persuasive evidence.
d.
Evidence is usually more reliable for balance sheet accounts when it is obtained within six months of the balance sheet date.
Marion Watson & Co., CPAs, is planning its audit procedures for its tests of the valuation of inventories of East Coast Manufacturing Co. The auditors on the engagement have assessed inherent risk and control risk for valuation of inventories at 100 percent and 50 percent, respectively. a. Calculate the appropriate level of detection riskfor the audit of this assertion, given that the auditors wish to restrict audit risk for the assertion to 3 percent. b. Calculate the appropriate level of detection risk for the audit of this assertion, given that the auditors wish to restrict audit risk for the assertion to 5 percent.
Chapter 7 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Auditors make materiality judgments during the planning/risk assessment phase of the audit to be sure they ultimatelygather sufficient evidence during the audit to provide reasonableassurance that the financial statements are free of material misstatements.The lower the materiality threshold that an auditorhas for an account balance, the more the evidence that the auditormust collect. Auditors often use quantitative benchmarks such as 1% of total assets or 5% of net income to determine whethermisstatements materially affect the financial statements, but ultimatelyit is an auditor’s individual professional judgment as towhether a given misstatement is or is not considered material.a. What is the relationship between the level of riskiness of theclient and the level of misstatement in an account balancethat an auditor would consider material? For example,assume that Client A has weaker controls over accountsreceivable compared to Client B (therefore, Client A is riskierthan Client B).…arrow_forwardOn the audit of Megna Ltd. the audit partner on the engagement set the preliminary level of audit materiality at TK. 10 crore. After the partner reviewed the audit senior’s assessment of inherent risk, he decided that the materiality level should be increase to Tk 15 crore.Required: (hint: Audit Risk)1) What is the relationship between materiality and audit risk?2) How will this new level of materiality affect the nature and extent of auditing procedures?arrow_forwardAudit risks for particular accounts and disclosures can be conceptualized in the model: Audit risk (AR) = Inherent risk (IR) × Control risk (CR) × Detection risk (DR). Use this model as a framework for considering the following situations and deciding whether the auditor’s conclusion is appropriate.a. Paul, CPA, has participated in the audit of Tordik Cheese Company for five years, first as an assistant accountant and the last two years as the senior accountant. Paul has never seen an accounting adjustment recommended and believes the inherent risk must be zero.b. Hill, CPA, has just (November 30) completed an exhaustive study and evaluation of the internal controls of Edward Foods Inc. (fiscal year ending December 31). Hill believes the control risk must be zero because no material errors could possibly slip through the many error-checking procedures and review layers that Edward used.c. Fields, CPA, is lazy and does not like audit jobs in Philadelphia. On the audit of Philly…arrow_forward
- Auditors make materiality judgments during the planning phase of the audit in order to be sure they ultimately gather sufficient evidence during the audit to provide reasonable assurance that the financial statements are free of material misstatements. The lower the materiality threshold that an auditor has for an account balance, the more the evidence that the auditor must collect. Auditors often use quantitative benchmarks such as 1% of total assets or 5% of net income to determine whether misstatements materially affect the financial statements, but ultimately it is an auditor’s individual professional judgment as to whether a given misstatement is or is not considered material. What is the relationship between the level of riskiness of the client and the level of misstatement in an account balance that an auditor would consider material? For example, assume that Client A has weaker controls over accounts receivable compared to Client B (therefore, Client A is riskier than Client…arrow_forwardDETERMINE WHETHER TRUE OR FALSE S1- Toward the end of an engagement, after all audit evidence has been gathered by the auditor, the auditor again considers materiality by comparing the combined misstatements with the preliminary or revised estimate for the entire set of the financial statements as a whole. S2- Changes in the regulatory or operating environment can result in changes in competitive pressures and significantly different risks.arrow_forward2) During the audit of a client you come to the conclusion that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial report. Accordingly, assuming nothing else has come to your attention, you should issue: a. A qualified opinion. b. An unmodified opinion. c. An adverse opinion. d. A disclaimer of opinion.arrow_forward
- Auditors use different types of audit procedures to gather the evidencenecessary to conclude that the risk of material misstatement for each relevant assertion has been reduced to an acceptably low level. List eight different types of procedures auditors can use during an audit of financial statements, and give an example of each.arrow_forwardQ. According to ISA 200, Which of the following statement is true with respect of inherent limitation of audit? a- The auditor cannot reduce the audit risk to zero but can obtain absolute guarantee that the financial statements are free from material misstatements. b- The auditor can reduce the audit risk to zero but cannot obtain absolute guarantee that the financial statements are free from material misstatements. c- The auditor cannot reduce the audit risk to zero but cannot obtain absolute guarantee that the financial statements are not free from material misstatements. d- The auditor cannot reduce the audit risk to zero but cannot obtain absolute guarantee that the financial statements are free from material misstatements.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub