Reference no: EM132725602

Problem 1: Which of the following statements is true?

a. If control risk is assessed at maximum, the nature of related substantive test should be changed from more to less effective

b. If control risk is assessed at maximum, the nature of related substantive test should be changed from less to more effective

c. If control risk is assessed at maximum, the timing of related substantive test should be changed from year-end to an interim date

d. If control risk is assessed at maximum, the extent of related substantive test should be changed from a larger to a smaller sample

Problem 2: Which of the following is not a distinguishing feature of risk-based auditing?

a. Identifying areas posing the highest risk of financial statement errors

b. Analysis of internal control

c. Collecting and evaluating evidence

d. Concentrating audit resources in those areas presenting the highest risk of financial statement errors.

Problem 3: Which of the following factors is not a good indicator of potential financial failure?

a. Client is constantly short of cash and working capital

b. Client's retained earnings were reduced by half as a result of a large dividend payout

c. Client relies heavily on debt financing, especially by financing permanent assets with short-term loans

d. Client has had increasing net losses for several years