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Planned detection risk is the risk that audit evidence for an audit objective will fail
to detect misstatements exceeding performance materiality.
The audit risk model helps auditors decide how much and what types of evidence to
accumulate for each relevant audit objective.
Which of the following is false regarding legal liability?
The SarbanesOxley Act greatly increases the responsibilities of public companies
and their auditors.
The Securities Act of 1933 deals only with the reporting requirements for
companies issuing new securities.
The Ultramares doctrine proved absence of causal connection.
The lack of duty to perform the service means that the CPA firm claims that there
was no implied or expressed contract.
Which of the following is false regarding final evidence accumulation?
Auditing standards require the auditor to evaluate going concern for at least six
months after the balance sheet date.
If supplementary information is presented, the auditor must clearly distinguish their
audit and reporting responsibilities.
Auditing standards require the auditor to perform analytical procedures during the
completion of the audit.
Auditing standards suggest four categories of specific matters that should be
included in the management representation letter.
The existence assertion concerns whether recorded transactions included in the financial
statements actually occurred.
True
False
Which of the following is false regarding the SEC and the PCAOB?
The SEC requires all public companies to file a 10-K annually.
The SEC has considerable influence in setting GAAP.
The PCAOB was responsible for establishing the SEC.
Which of the following is false regarding the review for contingent liabilities and
commitments?
Contingency footnotes should describe the nature of the contingency to the extent it
is known and the opinion of legal counsel or management as to the expected
outcome.
The most important characteristic of a commitment is the agreement to commit the
firm to a set of fixed conditions in the future, regardless of what happens to profits
or the economy as a whole.
An attorney letter is only sent to gather information if a known contingency exists.
Material contingent liabilities must be disclosed in the footnotes.
Which of the following is false regarding the transaction related audit objectives and
integrating the four phases of the audit?
One of the most challenging parts of auditing is properly applying the factors that
affect tests of details of balances.
Tests of controls and substantive tests of transactions are designed with the
expectation that certain results will be obtained.
The process of continuous auditing is frequently used in smaller audits of financial
statements and internal control for nonpublic companies.
Auditors accumulate evidence related to presentation and disclosure-related audit
objectives.
The accuracy assertion addresses whether transactions have been recorded at correct
amounts.
True
False
Which of the following is false regarding the five types of audit tests?
Auditors use risk assessment procedures to assess the risk of material misstatement,
represented by the combination of inherent risk and control risk.
Tests of controls are also used to determine whether these controls are effective and
usually involve testing a sample of transactions.
Analytical procedures are only required during planning but can be used in other
phases of the audit.
Substantive tests are procedures designed to test for dollar misstatements (often
called monetary misstatements) that directly affect the correctness of financial
statement balances.
Which of the following is false regarding analytical procedures?
Analytical procedures involve comparisons of recorded amounts to expectations
developed by those charged with governance.
Reasonableness test are considered analytical procedures.
The two purposes of analytical procedures are to indicate possible misstatements
and provide substantive evidence.
Analytical procedures are relatively inexpensive
Which of the following is false regarding materiality?
Materiality is subjective.
Misstatements that arise from differences between managements and the auditors
judgment about estimates of account balances would be an example of a known
misstatement.
Accounting and auditing standards do not provide specific materiality guidelines to
practitioners.
Auditors set a preliminary judgment about materiality to help plan the appropriate
evidence to accumulate.
Which of the following is false regarding internal control?
A system of internal control consists of policies and procedures designed to provide
management with reasonable assurance that the company achieves its objectives
and goals.
Section 404(a) of the SarbanesOxley Act requires management of all public
companies to issue an internal control report.
Management must also identify the framework used to evaluate the effectiveness of
internal control.
COSO provides a framework with four internal control components.
Foreseen users are members of a limited class of users that the auditor knows will
rely on the financial statements.
Which of the following is false regarding auditor liability?
Ordinary negligence is the absence of reasonable care that can be expected of a
person in a set of circumstances.
Lack of duty to perform means that the CPA firm claims that there was no implied
or expressed contract.
Fraud is the existence of extreme or unusual negligence even though there was no
intent to deceive or do harm.
Absence of causal connection is a defense used by auditors.
Which of the following is false regarding audit evidence?
The list of audit procedures for an audit area or an entire audit is called an audit
program.
An audit procedure is the detailed instruction that explains the audit evidence to be
obtained during the audit.
Analytical procedures consist of evaluations of financial information through
analysis of plausible relationships among financial and nonfinancial data.
The two determinants of the persuasiveness of evidence are relevance and
reliability.
Which of the following is false regarding communication between the auditor and the
audit committee or those charged with governance?
A client representation letter is a written statement from a nonindependent
source but is still regarded as reliable evidence.
Auditing standards require the auditor to obtain a letter of representation
documenting managements most important oral representations made during the
audit.
Auditing standards requires the auditor to read other information included in annual
reports pertaining directly to the financial statements.
As an aid in deciding whether the audit evidence is adequate, auditors often use a
completing the audit checklist, which is a reminder of items that may have been
over looked.