Reference no: EM133127193

Questions -

Q1. PPC provides standard audit programs and guidance used by many small and regional CPA firms. This guidance usually sets applied (individual account) materiality as 75% of overall planning materiality. What is the conceptual flaw in this guidance?

1. It does not take into account the expected amount of error in particular accounts.

2. It does not take into account the ease or difficulty in testing each financial statement account.

3. It allocates an amount of materiality to the individual accounts such that the total allocated to all accounts is much more than the amount of planning materiality.

4. All of the above

Q2. A conceptually better way to apply materiality to accounts is to

a. Apply little or no materiality to accounts that takes little time to audit fully

b. Apply materiality based on the amount of each account after excluding accounts that take little time to audit fully

c. Apply materiality equally across all accounts

d. Apply any amount less than 50% of planning materiality to each account

Q3. Which of the following risks in the audit risk model can the auditor control?

a. Inherent risk

b. Control risk

c. Detection risk

d. None of the above

Q4. To maintain a given level of audit risk, if control risk is raised, then detection risk must

a. Increase

b. Decrease

c. Remain the same

d. Increase or decrease depending on the nature of the account

Q5. If detection risk for an account is set at low, the auditor

a. Will perform much less substantive audit work than if the detection risk were set at high

b. Will perform much more test of controls than if the detection risk were set at high

c. Will perform much more substantive audit work than if the detection risk were set at high

d. Will perform much less test of controls than if the detection risk were set at high

Q6. Inherent risk generally

a. Is high for assets

b. Is high for liabilities

c. Depends on the particular account and particular assertion being evaluated

d. Depends only on the assertion being evaluated

Q7. Audit procedures for identifying related parties are

a. Performed at the end of an audit

b. Performed during the planning phase of an audit

c. Generally strong procedures that have a high chance of identifying all related parties

d. Focused on detecting transactions with related parties

Q8. Financial fraud includes

a. The misappropriation of financial assets

b. Unintentional misstatement of the financial statements

c. The misappropriation of tangible assets such as inventory

d. None of the above

Q9. The chief accountant at a company misappropriates a material amount of funds and makes an accounting entry crediting cash and debiting miscellaneous expenses to conceal the misappropriation. Which of the following is true?

a. The auditors have a responsibility to perform audit procedures that provide reasonable assurance of detecting this.

b. The auditors do not have a responsibility to perform audit procedures that provide reasonable assurance of detecting this.

c. The auditors do not have a responsibility to perform audit procedures that provide reasonable assurance of detecting this but if they learn of this during their audit they must identify it as part of their audit

Q10. If the auditors decide not to test any internal controls in an audit of a nonprofit organization, then

a. Control risk must be set at high for all accounts and assertions

b. For account assertions that have high inherent risk, detection risk must be set at low risk

c. The auditors have not done a proper audit, since at least some controls over financial reporting must be tested

d. a and b

Q11. The highest risk assertion for accounts payable is

a. Existence

b. Completeness

c. Valuation

d. None of the above