Professional Documents
Culture Documents
1.
2.
Inherent risk and control risk differ from detection risk in that they
A
B
C
D
3.
4.
A material provision for a lawsuit was omitted from the accounting record.
Production overhead, which is less than 50% of the total production costs,
were misclassified as distribution expenses during the accounting process.
Notes to the accounts had not included the details of a finance lease
agreement signed during the current year.
The company did not write off a significant amount of inventory after
discovering that it had been stolen.
Inherent risk
Detection risk
Control risk
Both detection and control risk
If the auditor assesses control and inherent risk as low, what would you expect
the auditor to do?
A
B
C
D
Q3-1
Chapter 3
5.
6.
7.
In determining the level of planning materiality for an audit, what should not be
considered?
A
B
C
D
8.
the companys profit for the year is the same as last year.
the chief accountant has been with the company for 15 years.
the newly appointed finance director was previously the marketing
manager.
the company has decided to set up an internal audit department.
Which of the following audit risk components may be assessed in nonquantitative terms?
Control risk
Detection risk
Inherent risk
Yes
Yes
No
Yes
No
Yes
Yes
Yes
Yes
No
Yes
Yes
Q3-2
Chapter 3
9.
10.
11.
inherent risk
audit risk
client risk
control risk
Which of the following industries is usually considered high risk by audit firms?
A
B
C
D
13.
$10,000
$15,000
$20,000
$30,000
The risk that financial statements are likely to be misstated materially without
regard to the effectiveness of internal control is which type of risk?
A
B
C
D
12.
Parallel.
Inverse
Direct
Equal
Which of the following factors is not a component of the audit risk model?
A
inherent risk.
Q3-3
Chapter 3
B
C
D
14.
In the audit risk model, which of the risk components may only be assessed by
the auditor?
A
B
C
D
15.
Inherent risk
Control risk
Detection risk
Both A and B
In the audit risk model, its risk components are either determined, assessed, or
manipulated. Which of the following risks are controllable by the auditor?
A
B
C
D
16.
statistical risk.
detection risk.
control risk.
Audit risk
Control risk
Detection risk
Both A and C
Q3-4
Chapter 3
Petit Ltd
$40,000
$40,000
Expected misstatement
$16,000
$16,000
$1,600,000
$1,600,000
$896,000
$258,000
$890,000
$252,000
Required:
(a)
(b)
(c)
(d)
(e)
Q3-5
Chapter 3
Question 2
Auditors should consider materiality and its relationship with audit risk when
conducting an audit. Furthermore, they should consider materiality when determining
the nature, timing and extent of audit procedures and evaluating the effect of
misstatements.
In evaluating whether the financial statements are prepared, in all material respects, in
accordance with an applicable financial reporting framework, auditors should assess
whether the aggregate of uncorrected misstatements that have been identified during
the audit is material.
REQUIRED:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Question 3
(a) State the determining factors on materiality.
(2 marks)
(b) List and explain the three components of audit risk.
(6 marks)
(HKIAAT Paper 8 Pilot Paper 2008 C1(g)&(h))
Q3-6