AUDITORS RESPONSE TO ASSESSED RISKS

1. Which of the following is least likely to be considered an appropriate response relating to

risks the auditors identify at the financial statement level?
a.
Assign more experienced staff.
b.
Incorporate additional elements of unpredictability in the selection of audit
procedures.
c.
Increase the scope of auditor procedures.
d.
Emphasize the need to remain neutral, rather than to exercise professional
scepticism.
2. Which of the following is the correct order for performing the auditing procedures A
through C below?

a.
b.
c.
d.

A = Tests of controls
B = Preparation of a flowchart depicting the clients internal control structure
C = Substantive tests
ABC
ACB
BAC
BCA

3. Set the following steps in proper order

1) Determine the nature, extent and timing of substantive tests
2) Make a preliminary control risk assessment
3) Obtain understanding of the entity and its environment
4) Determine the appropriate response to assessed risks
5) Reassess control risk
4. S1: The relatively low number of types of transactions incurred by small firms makes the
segregation of duties impossible
S2: The substantive approach to an audit is appropriate for many small businesses.
a.
True, True
b.
True, False
c.
False, true
d.
False, False
5. In planning an audit, the auditors knowledge about the design of relevant controls should
be used to
a.
Identify the types of potential misstatements that could occur
b.
Assess the operation efficiency of internal control.
c.
Determine whether controls have been circumvented by collusion
d.
document the assessed level of control risk
6. An auditor uses the knowledge provided by the understanding of internal control and the
assessed level of control risk primarily to
a.
Determine whether procedures and records concerning the safeguarding of assets
are reliable
b.
Ascertain whether the opportunities to allow any person to both perpetrate and
conceal fraud are minimized.
c.
Modify the initial assessments of inherent risk and preliminary judgments about
materiality level
d.
Determine the nature, timing, and extent of substantive tests for financial
statement assertions
7. Which of the following statements is correct concerning an auditors assessment of control
risk?

a.
b.
c.
d.

assessing control risk may be performed concurrently during an audit with obtaining
an understanding of the entitys internal control.
Evidence about the operation of internal control prior audits may not be considered
during nthe concurrent years assessment of control risk.
The basis for an auditors conclusions about the assessed level of control risk need
ot be documented unless control risk is assessed at the maximum level.
The lower the assessed level of control risk, the less assurance the evidence must
provide that the control procedures are operating effectively.

8. Regardless of the assessed level of control risk, an auditor would perform some
a.
Tests of controls to determine the effectiveness of internal control policies.
b.
Analytical procedures to verify the design of internal control.
c.
Substantive test to restrict detection risk for significant transaction classes.
d.
Dual-purpose tests to evaluate both the risk of monetary misstatement and
preliminary control risk.
9. A clients internal control appears strong, but the CPA has elected not to perform any tests
of controls. The planned assessed level of control risk is what level?
a.
Zero
b.
Low
c.
Moderate
d.
Maximum
10.Which of the following is not a step in an auditors decision to assess control risk at below
the maximum?
a.
Evaluate the effectiveness of internal control with test of controls
b.
Obtain an understanding of the entitys information system and control
environment.
c.
Perform test of details of transactions to detect material misstatements in the
financial statements.
d.
Consider whether controls can have a pervasive effect on financial statement
assertions.
11.Assessing control risk at below the maximum level most likely would involve
a.
Performing more extensive substantive tests with larger sample sizes ta originally
planned.
b.
Reducing inherent risk for most of the assertions relevant to significant account
balances.
c.
Changing the timing of substantive tests by omitting interim-date testing an
performing the tests at year-end
d.
Identifying specific controls relevant to specific assertions.
12.After
on
a.
b.
c.
d.

documenting internal control in an audit engagement, the auditor may perform tests
Those controls that the auditor plans to rely on.
Those controls in which deficiencies were identified.
Those controls that have a material effect on the financial statement balances
A random sample of the controls that were reviewed.

13.After assessing control risk at below the maximum level, an auditor desires to seek a
further reduction in the assessed level of control risk. At this time, the auditor would
consider whether
a.
It would be efficient to obtain an understanding of the entitys information system.
b.
The entitys control have been placed in operation.
c.
The entitys controls pertain to any financial statement assertions.
d.
Additional evidential matter sufficient to support a further reduction is likely to be
available.

14.After obtaining an understanding of internal control and assessing control risk, an auditor
decided to perform tests of controls. The auditor most likely decided that
a.
An increase in the assessed level of control risk is justified for certain financial
statement assertions.
b.
there were many internal control weaknesses that could allow misstatement to
enter the accounting system
c.
Additional evidence to support a further reduction in control risk is not available.
d.
It would be efficient to perform tests of controls that would result in a reduction in
planned substantive tests.
15.Auditors must perform a test of the operating effectiveness of a significant control
a.
In all audits
b.
When the control relates to a significant asset
c.
When substantive procedure alone will not provide sufficient evidence about the
related assertion.
d.
When the auditors believe that the control may not be effective.
16.In a financial statement audit performed following international Standards, how frequently
must an auditor test operating effectiveness of controls that appear to function as they
have in past years and on which the auditor wishes to rely upon in the current year?
a.
Monthly
b.
Each audit
c.
At least every second audit
d.
At least every third audit.
17.An auditors purpose for performing tests of controls is to provide reasonable assurance
that:
a.
Controls are operating effectively
b.
The risk that the auditor may unknowingly fail to modify the opinion on the financial
statements is minimized.
c.
Transactions are executed in accordance with managements authorization and
access to assets is limited by a segregation of functions.
d.
Transactions are recorded as necessary to permit the preparation of the financial
statements in conformity with generally accepted accounting principles.
18.Tests
a.
b.
c.
d.

of controls do not ordinarily address:

By whom a control was applied.
How a control was applied.
The consistency with which a control was applies.
The cost effectiveness of the way a control was applied.

19.In assessing control risk, an auditor ordinarily selects from a variety of techniques,
including
a.
Inquiry and analytical procedures.
b.
Reperformance and observation
c.
Comparison and confirmatiom
d.
Inspection and verification.
20.Before assessing control risk at a level lower tha the maximum, the auditor obtains
reasonable assurance that controls are in use and operating effectively. This aasurance is
most likely obtained in part by
a.
Preparing flowcharts
b.
Performing substantive tests
c.
Analyzing test of trends and ratios
d.
Inspection of documents.
21.The auditor is examining copies of sales invoices only for initials of the person responsible
for checking the extensions. This is an example of a
a.
Test of controls.
b.
Substantive test.

c.
Dual-purpose text.
d.
Test of balances.
22.Which of the following is least likely to be evidence the auditor examine to determine
whether controls are operating effectively?
a.
Signatures on authorization forms.
b.
Cancelled supporting documents.
c.
Confirmations of accounts receivable.
d.
Records documenting usage