Multiple choice questions-Audit Planning and Risk
Assessment
1)
Which of the following is one of the procedures
in the planning phase?
a) Determine materiality.
b)
Determine need for other professionals.
c)
Prepare client proposal.
d)
Select staff to perform the audit.
2)
Inquiries of management and personnel include
discussion of all the following except:
a)
Audit procedures needed.
b)
Expectations.
c)
Reports.
d)
Objectives.
3)
The standards given in ‘Understanding the Entity
and Its Environment and Assessing the Risks of Material Misstatement’ (ISA 315)
emphasizes:
a)
Procedures for sampling audit tests.
b)
Obtaining an understanding of control risk.
c)
Obtaining an understanding of business risks and
significant risks.
d)
Reports to federal regulators.
4.
Information acquired during the planning phase
about business operations may include all of the following except:
a)
Acquisition and disposals of business divisions.
b)
Employment.
c)
Market.
d)
Nature of revenue sources.
5.
Which of the following is not a procedure to
obtain an understanding of risk in the planning stage (described in ISA 315)?
a)
Procedures for sampling audit tests.
b)
Observation and inspection.
c)
Analytical procedures.
d)
Inquiries of management.
6.
ISAs require that ________________________
discuss the susceptibility of the entity’s financial statements to material
misstatement.
a)
The engagement partner and other key engagement
team members.
b)
Key engagement team members.
c)
The engagement partner and an outside partner.
d)
Auditee management and the engagement partner.
7.
Important investment transactions for which
information should be gathered include all the following except:
a)
Investments of the audit staff.
b)
Capital investment activities.
c)
Acquisitions, mergers and disposals of business
divisions.
d)
Types of major investment by the company.
8.
When investigating the company’s legal position,
the auditor should look at:
a)
The auditee’s website.
b)
Minutes of the board of directors and stockholders’
meetings.
c)
Customs import documents.
d)
Attorney billings.
9.
Significant conditions, events, circumstances or
actions that could adversely affect the entity’s ability to achieve its
objectives and execute its strategies create:
a)
Business risks.
b)
Management risks.
c)
Detection risks.
d)
Control risks.
10.
Auditors may use a strategy-oriented framework,
which involves the following steps:
a)
Understand the risks that threaten the client’s
business objectives.
b)
Measure and benchmark process performance.
c)
Use the comprehensive business knowledge
decision frame to develop expectations about key assertions embodied in the
overall financial statements.
d)
All of the above
11.
Misstatements or omissions are material if they
could reasonably be expected to influence _____________ taken on the basis of
the financial statements.
a)
Primary qualitative characteristics.
b)
The content of the item or error.
c)
Pervasiveness of the item.
d)
Economic decisions of users.
12.
Judgments about materiality are made in light of
surrounding circumstances, and are affected by the ______________ of a
misstatement, or a combination of both.
a)
Significance or size.
b)
Size or nature.
c)
Significance or nature.
d)
Size or characteristics.
13.
Inherent risk, control risk and detection risk
are components of:
a)
Auditor’s risk.
b)
Materiality risk.
c)
Business risk.
d)
Audit risk.
14.
In determining what a significant risk is, the
auditor considers a number of matters, including all the following except:
a)
The likelihood of the occurrence of the risk.
b)
The degree of subjectivity in the measurement of
financial information related to the risk.
c)
The complexity of transactions that may give
rise to the risk.
d)
Whether the risk is related to recent
significant accounting developments and, therefore, requires specific
attention.
15.
The audit standards define fraud as ‘an
intentional act by one or more individuals among management, those charged with
governance, ___________________ , involving the use of deception to obtain an
unjust or illegal advantage.’
a)
Employees, vendors or third parties.
b)
Employees or others.
c)
Employees or vendors.
d)
Employees or third parties.
16.
A situation where someone believes they have a favorable
or promising combination of circumstances to commit an undetectable fraud is
the description of:
a)
Rationalization.
b)
Perceived opportunity.
c)
Perceived pressure.
d)
Management fraud.
17.
The auditor must obtain an understanding of the
controls of the service organisation used by the auditee from one or more of
the following procedures except:
a)
Visiting the service organisation and performing
procedures.
b)
Contacting the service organisation’s auditor.
c)
Obtaining a Type 1 or Type 2 report.
d)
Using another auditor to perform procedures that
will provide the necessary controls information at the service organisation.
18.
Business operations, types of investments,
capital structure and financing, and ownership structures are areas that are
considered when obtaining an understanding of:
a)
Objectives and strategies.
b)
The nature of the entity.
c)
Measurement and review of financial performance.
d)
Accounting policies.
19.
Detection risk is:
a)
The risk that an auditor’s substantive
procedures will not detect a misstatement that exists and that could be
material.
b)
The risk that the auditor expresses an
inappropriate audit opinion when the financial statements are materially
misstated.
c)
The susceptibility of an assertion to
misstatements that could be material, before consideration of any related
controls.
d)
The risk that a misstatement that could occur in
an assertion, and that could be material, will not be prevented, or detected
and corrected, on a timely basis by the entity’s internal control.
20.
Which of the following might be a commonly used
guideline related to a financial statement materiality base?
a)
15% to 20% of current assets.
b)
5% to 10% of long-term liabilities.
c)
1/2% to 2% of total assets.
d)
2% to 4% of net income before taxes.
21.
Risk assessment procedures that may indicate
fraud include inquiries of management regarding:
a)
Internal control effectiveness.
b)
If there is fraud elsewhere in their industry.
c)
If there are any relatives of the executives
employed in the entity.
d)
Whether management knows of any fraud in the
entity.
22.
The difference between a Type 1 and Type 2
internal control report is that the Type 2 report and not a Type 1 report
includes:
a)
A description of the service auditor’s tests of
the controls and the results thereof.
b)
Management’s description of the service
organisation, service organisation’s system, control objectives and related
controls.
c)
The report on internal controls given to those
charged with corporate governance.
d)
A report by the service auditor conveying their
opinion on the description of the service organisation’s system, etc. and the
operating effectiveness of the controls.
23.
Typically, an audit planning memorandum would
contain the following sections except:
a)
Background information.
b)
Objectives of the audit.
c)
Audit approach.
d)
Assessment of business risk.
Answer Keys
|
1
|
a
|
9
|
a
|
17
|
a
|
|
2
|
a
|
10
|
d
|
18
|
b
|
|
3
|
c
|
11
|
d
|
19
|
a
|
|
4
|
a
|
12
|
c
|
20
|
c
|
|
5
|
a
|
13
|
a
|
21
|
d
|
|
6
|
a
|
14
|
d
|
22
|
a
|
|
7
|
a
|
15
|
d
|
23
|
d
|
|
8
|
b
|
16
|
b
|
|
|
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