CPA Auditing and Attestation (AUD) : The Audit Process - Risk Assessment

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Example Questions

Example Question #12 : Quality Control, Engagement Acceptance, Planning, & Internal Control

Risk is communicated in the audit report as:

Possible Answers:

reasonable assurance

absolute assurance

adequate assurance

minimal assurance

Correct answer:

reasonable assurance

Explanation:

The concept of reasonable assurance is used to guide the auditor when assigning and assessing risk in the audit process.

Example Question #13 : Quality Control, Engagement Acceptance, Planning, & Internal Control

Risk of material misstatement exists at:

Possible Answers:

The overall financial statement level

Both A and B

In each transaction

Neither A and B

Correct answer:

Both A and B

Explanation:

The risk of misstatement appears at the transactional level as well as the financial statement level. The statements can be materially misstated in the aggregate based on a series of misstated transactions or on the whole.

Example Question #1 : The Audit Process Risk Assessment

Inherent risk is defined as:

Possible Answers:

Risk that was not detected by appropriate internal controls

None of the above

Due to factors other than internal control

Risk that material misstatement would not be detected by internal controls in place

Correct answer:

Due to factors other than internal control

Explanation:

Inherent risk is defined as risk that exists outside the audit process. It is sometimes termed industry risk.

Example Question #2 : The Audit Process Risk Assessment

The objective of performing analytical procedures in planning an audit is to identify the existence of:

Possible Answers:

Related party transactions

Unusual transactions and events

Recorded transactions that were not properly authorized

Acts of noncompliance with laws and regulations that went undetected because of internal control weaknesses.

Correct answer:

Unusual transactions and events

Explanation:

The objective of performing analytical procedures during planning is to discover unusual transactions or events that may have an impact on the planning of the financial statement audit.

Example Question #3 : The Audit Process Risk Assessment

An auditor compared the current year gross margin with the prior year gross margin to determine if the cost of sales is reasonable. What type of audit procedure was performed?

Possible Answers:

Test of details

Test of controls

Test of transactions

Analytical procedures

Correct answer:

Analytical procedures

Explanation:

Analytical procedures are evaluations of financial information made by a study of plausible relationships among data and they include comparisons between the current year and prior year's financial information.

Example Question #4 : The Audit Process Risk Assessment

If the management of a company with recently audited financial statements refuses to make a revision to the statements as a result of a material inconsistency, the auditor should __________.

Possible Answers:

Modify the audit opinion

Either

Withdraw from the engagement

Neither

Correct answer:

Either

Explanation:

An auditor may modify the opinion of his or her audit if management refuses to correct a material issue, or withdraw from the engagement altogether.

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