1 a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users relates to

a. Accounting service.

c. Financial Audit service.

b. Consulting service.

d. Personal service

2. In class in discussing the audit risk model we considered several cases as follows:

Case Audit Risk Inherent Risk Control Risk Detection Risk

I .05 .60 .30 .278

II .05 .20 .30 ???

What would be the required level of detection risk for case II. Compared with Case I would the auditor expect to do more or less audit work (substantive testing)?

a. .167; more audit work.

b. .167; less audit work.

c. .833; more audit work.

d. .833; less audit work.

e. none of the above.

3. A type of fraud where company management understates expenses and liabilities in hopes of leading to a higher price for the companys common stock, is called

a. financial reporting fraud, or fraudulent financial reporting.

b. defalcation.

c. error.

d. misuse of authority.

4. The magnitude of an omission or misstatement of accounting information that, in view of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement refers to the concept of:

a. Audit risk

b. Engagement risk

c. Substantive importance

d. Materiality

5. In class, we discussed the notion of an audit philosophy of tests of accounts for overstatement and understatement to gain audit efficiencies. Consider the following statements:

I. Testing Sales for UNDERstatement, conceptually, also tests Accounts receivable for UNDERstatement.

II. The auditor would mostly be concerned about testing liabilities for understatement.

a. I is true; II is true.

b. I is true; II is false.

c. I is false; II is true.

d. I is false; II is false.

6. Consider the following statements:

I. Materiality has both quantitative and qualitative considerations.

II. Substantive procedures [audit work] involve test of details, and analytical review.

a. I is true; II is true.

b. I is true; II is false.

c. I is false; II is true.

d. I is false; II is false.