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1 | |
An auditor who believes that a material fraud may exist should initially |
| | A) | Discuss the matter with those believed to be involved in the perpetration of the material fraud. |
| | B) | Discuss the matter with a higher level of management. |
| | C) | Withdraw from the engagement. |
| | D) | Consult legal counsel. |
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2 | |
In developing the preliminary level of materiality in an audit, the auditor will |
| | A) | Look to audit standards for specific materiality guidelines. |
| | B) | Increase the level of materiality if fraud is suspected. |
| | C) | Rely primarily on professional judgment to determine the materiality level. |
| | D) | Use the same materiality level as that used for different clients in the same industry. |
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3 | |
All of the following represent opportunities to commit fraud except: |
| | A) | Operating losses make a hostile takeover imminent. |
| | B) | The audit committee is ineffective. |
| | C) | The organizational structure creates unusual lines of authority. |
| | D) | The existence of highly complex transactions. |
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4 | |
The existence of audit risk is recognized by the statement in the auditor's standard report that the |
| | A) | Auditor obtains reasonable assurance about whether the financial statements are free of material misstatements. |
| | B) | Auditor is responsible for expressing an opinion on the financial statements, which are the responsibility of management. |
| | C) | Financial statements are presented fairly, in all material respects, in conformity with GAAP. |
| | D) | Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. |
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5 | |
Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements? |
| | A) | Management places little emphasis on meeting earnings projections. |
| | B) | The board of directors makes all major financing decisions. |
| | C) | Reportable conditions previously communicated to management are not corrected. |
| | D) | Transactions selected for testing are not supported by proper documentation. |
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6 | |
The risk that an auditor's procedures will lead to a conclusion that a material misstatement in an account balance does not exist, when in fact a misstatement did occur, is known as: |
| | A) | Audit risk |
| | B) | Detection risk |
| | C) | Inherent risk |
| | D) | Business risk |
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7 | |
Which of the following would an auditor most likely use in the determination of the preliminary level of materiality: |
| | A) | The entity's unaudited financial statements |
| | B) | The expected sample size for planned substantive tests |
| | C) | The level of tolerable misstatement |
| | D) | Analytical procedures |
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8 | |
As higher acceptable levels of planned audit risk and materiality are established, the auditor should plan work on individual accounts to: |
| | A) | Find smaller errors |
| | B) | Find larger errors |
| | C) | Decrease the tolerable misstatement level |
| | D) | Increase inherent risk |
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9 | |
In which of the following situations does an auditor's legal and ethical responsibilities to his/her client preclude the dissemination of confidential information to outside parties: |
| | A) | A court subpoena in conjunction with a fraud investigation. |
| | B) | A successor auditor makes inquiries in determining whether to accept the client. |
| | C) | A Wall Street analyst inquiry regarding future profit projections. |
| | D) | All of the above |
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10 | |
Which of the following statements is false related to the auditor's responsibility to document its risk assessment: |
| | A) | The documentation may include the use of questionnaires. |
| | B) | Management's response to high risk areas identified by the auditor should be included in the documentation. |
| | C) | Communications to the audit committee may be made orally, although written documentation is preferable. |
| | D) | All of the above |
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