Audit Risks and Materiality Sample Questions
Audit Risk and Materiality
MULTIPLE CHOICE:
1. An auditor compares 2002 revenues and expenses with those of the prior year and investigates all changes exceeding 10%. By this procedure the auditor would be most likely to learn that a. An increase in property tax rates has not been recognized in the client 's accrual. b. The 2002 provision for uncollectible accounts is inadequate, because of worsening economic conditions. c. Fourth quarter payroll taxes were not paid. d. The client changed its capitalization policy for small tools in 2002.
ANSWER: D
2. The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the a. Timing of inventory observation procedures to be performed. b. Evidence to be gathered to provide a sufficient basis for the auditor 's opinion. c. Procedures to be undertaken to discover litigation, claims, and assessments. d. Pending legal matters to be included in the inquiry of the client 's attorney.
ANSWER: A
3. When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining a. Whether the predecessor 's work should be utilized. b. Whether the company follows the policy of rotating its auditors. c. Whether, in the predecessor 's opinion, internal control of the company has been satisfactory. d. Whether the engagement should be accepted.
ANSWER: D
4. Having evaluated inherent risk and control risk, the auditor determines detection risk
MULTIPLE CHOICE:
1. An auditor compares 2002 revenues and expenses with those of the prior year and investigates all changes exceeding 10%. By this procedure the auditor would be most likely to learn that a. An increase in property tax rates has not been recognized in the client 's accrual. b. The 2002 provision for uncollectible accounts is inadequate, because of worsening economic conditions. c. Fourth quarter payroll taxes were not paid. d. The client changed its capitalization policy for small tools in 2002.
ANSWER: D
2. The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the a. Timing of inventory observation procedures to be performed. b. Evidence to be gathered to provide a sufficient basis for the auditor 's opinion. c. Procedures to be undertaken to discover litigation, claims, and assessments. d. Pending legal matters to be included in the inquiry of the client 's attorney.
ANSWER: A
3. When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining a. Whether the predecessor 's work should be utilized. b. Whether the company follows the policy of rotating its auditors. c. Whether, in the predecessor 's opinion, internal control of the company has been satisfactory. d. Whether the engagement should be accepted.
ANSWER: D
4. Having evaluated inherent risk and control risk, the auditor determines detection risk