Multiple Choice Questions
The following questions deal with assessing control risk in a financial statement audit. Choose the best response.
a. The auditor's tests of controls revealed that required approvals of cash disbursements were absent for a large number of sample transactions examined. Which of the following is least likely to be the appropriate auditor response?
(1) The auditor will communicate the deficiency to those charged with governance.
(2) The auditor will increase the planned detection risk.
(3) The auditor will not select more sample items to audit.
(4) The auditor will perform more extensive substantive tests surrounding cash disbursements.
b. An auditor uses assessed control risk to
(1) Evaluate the effectiveness of the entity's internal controls.
(2) Identify transactions and account balances where inherent risk is at the maximum.
(3) Indicate whether materiality thresholds for planning and evaluation purposes are sufficiently high.
(4) Determine the acceptable level of detection risk for financial statement assertions.
c. On the basis of audit evidence gathered and evaluated, an auditor decides to increase assessed control risk from that originally planned. To achieve an audit risk level (AcAR) that is substantially the same as the planned audit risk level (AAR), the auditor will
(1) Increase inherent risk.
(2) Increase materiality levels.
(3) Decrease substantive testing.
(4) Decrease planned detection risk.
d. Which of the following statements about tests of controls is incorrect? Tests of controls (1) Must be done in every audit of an accelerated filer public company's financial statements.
(2) Provide persuasive evidence that a material misstatement exists when the auditor determines that the control is not being consistently applied.
(3) Are often based on the same types of audit techniques used to gain an understanding of internal controls, except the extent of testing is generally greater when testing controls.
(4) Allow a reduction in the extent of substantive testing, as long as the results of the tests of controls are equal to or better than what the auditor expects.