Multiple Choice Question
1. Which of the following models expresses the general relationship of risks associated with the auditor€™s evaluation of control risk (CR), inherent risk (IR), and audit risk(AR) that would lead the auditor to conclude that additional substantive tests of details of an account balance are not necessary?

2. Which of the following would indicate that inventory would be a high risk account for the upcoming audit?
a. Inventory has decreased even though sales have increased.
b. Sales growth is lower than inventory growth.
c. Average inventory age is higher than the industry.
d. All of the above.
e. B and C above.
3. Comparing client data with industry data and with its own results for the previous year, the auditor finds that the number of days€™ sales in accounts receivable for this year is 66 for the client, 42 for the industry average, and 38 for the previous year. Inventory levels have remained the same.The increase in this ratio could indicate all of the following except:
a. Fictitious sales during the current year
b. A policy to promote sales through less strenuous credit policies
c. Potential problems with product quality and the inability of the client to meet warranty claims
d. Increased production of products for expected increases in demand
4. An auditor suspects that fictitious sales may have been recorded during the year. Which of the following analytical review results would most likely indicate that fictitious sales were recorded?
a. Uncollectible account write-offs increased by 10%, sales increased by 10%, and accounts receivable increased by 10%.
b. Gross margin decreased from 40 to 35%.
c. The number of day's sales in accounts receivable decreased from 64 to 38.
d. Accounts receivable turnover decreased from 7.1:1 to4.3:1.

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a, 20% b. 20% c. 10% d. 30% CR 40% 60% 70% 40% 10% 5% 5%