Audit risk Multiple Choice Is what creates the demand for an audit. Is the risk that a "clean" opinion will be issued when, in reality, the financial statements are materially misstated. Is the risk that a company may hire an incompetent auditor. Can be completely eliminated through appropriate sampling of transactions.
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TRUE OR FALSE When sampling is used by an auditor, an element of uncertainty is present in the auditor's conclusion. When evaluating the results of specific items selected for testing, its effects must be projected to the whole population. In performing external confirmations, the management prepares the requests and receives and replies for communication to the auditor. As the use of going concern assumption is always relevant un audit, the auditor shall evaluate whether uncertainty exists as the company's ability to continue as going concern. Adverse key financial ratios and negative operating cash flows are some events that may cast doubt about the going concern of a company. In searching for unrecorded liabilities, the population of audit interest is the schedule of accounts payable at period end. Audit sampling refers to the application of audit procedures to less than 100% of the items in an account balance or class of transactions for the purpose of evaluating some of its characteristics. If written management representations are not provided, the auditor shall assess the possible effects on the auditor's opinion. If the detection risk is at above minimum level, less effective audit procedures may applied. The addressee of the representation letter Is the intended users of the financial statements.
Lottie A.
21. Which of the following is not a consideration when the auditor is attempting to assess the inherent risk? A. Nature of the client's business. B. Existence of related parties. C. Frequency and intensity of top management review. D. Susceptibility to defalcation. 22. Inherent risk is reduced when the likelihood of defalcations is low. This would be true for an account such as: A. Property, plant and equipment. B. Held for trading securities. C. Cash. D. Accounts receivable. 23. Which of the following is an incorrect statement? A. Detection risk is a function of the effectiveness of an auditing procedure and its application. B. Detection risk arises partly from uncertainties that exist when the auditor does not examine 100 percent of the population. C. Detection risk arises partly because of other uncertainties that exist even if the auditor were to examine 100 percent of the population. D. Detection risk exists independently of the audit of the financial statements. 24. Which of the following pertains to detection risk? A. An entity's asset custodian and record-keeping function for cash are handled by one process owner. B. An entity operates in a highly complex business environment. C. An auditor uses substantive analytical procedures instead of tests of balances. D. None of the above. 25. Which of the following statements is correct concerning an auditor's assessment of control risk? A. Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control. B. Evidence about the operation of internal control in prior audits may not be considered during the current year's assessment of control risk. C. The basis for an auditor's conclusions about the assessed level of control risk need not be documented unless control risk is assessed at the maximum level. D. The lower the assessed level of control risk, the less assurance the evidence must provide that the control procedures are operating effectively.
Madhur L.
A sample in which the characteristics of the sample are the same as those of the population is: A) an attributes sample. B) a variables sample. C) a representative sample. D) a random sample. 2) One of the causes of non-sampling error is: A) the use of inappropriate or ineffective audit procedures. B) the use of attributes sampling instead of variables sampling. C) failure to draw a random sample. D) failure to draw a representative sample. 3) How can non-sampling risk be eliminated? A) proper supervision and instruction of the client's employees B) controls which ensure that the sample drawn is random and representative C) the use of attributes sampling rather than variables sampling D) proper supervision and instruction of the audit team 4) Sampling risk (sampling error) is an inherent part of sampling which results from: A) testing less than the entire population. B) weaknesses in client's internal control system. C) inappropriate audit procedures. D) failure to recognise exceptions. 5) Non-sampling errors occur when audit tests do NOT uncover existing exceptions in the: A) planning stage. B) population. C) financial statements. D) sample. 6) One of the ways to reduce sampling risk is to: A) provide proper supervision and instruction of the audit team. B) carefully design the audit procedures to be used. C) use variables sampling rather than attributes sampling. D) use an appropriate method of selecting sample items from the population. 7) Which one of the following BEST illustrates the concept of sampling risk? A) The documents related to the chosen sample may not be available for inspection. B) An auditor may select audit procedures that are not appropriate to achieve the specific objective. C) A randomly chosen sample may not be representative of the population as a whole on the characteristics of interest. D) An auditor may fail to recognise errors in the documents examined for the chosen sample. 8) The risk which the auditor is willing to take in accepting a control as being effective when it is not is the: A) allowable risk of overreliance (ARO). B) tolerable deviation rate (TDR). C) estimated population deviation rate. D) sample deviation rate (SDR). 9) The deviation rate the auditor will permit in the population and still be willing to use the assessed level of control risk established during planning is called the: A) tolerable deviation rate (TDR). B) sample deviation rate (SDR). C) acceptable risk of overreliance (ARO). D) estimated population deviation rate. 10) What is the most important aspect of audit sampling? A) evaluating the results B) sample selection C) performing the audit procedures D) all of the above
Shyam P.
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