1. Analytical procedures involve identifying fluctuations in accounts. For example, if an auditor is aware that the client has issued a significant amount of equity in the previous financial year, the auditor would expect the debt to equity ratio to

increase.

double.

decrease.

remain unchanged.

2. Which of the following would most likely be the most appropriate basis for determining materiality in a publicly listed enterprise?

net income before tax

total assets

total liabilities

total equity

3. Which of the following is true when the auditor determines the client has a low risk of material misstatement? Select all that apply.

detection risk is assessed as high

inherent risk is assessed as low

very limited testing of controls will be performed

control risk is assessed as low

reduced reliance on substantive tests of transactions and account balances

4. An auditor determines that a client does not have appropriate controls in place to mitigate the risk of material misstatement. The auditor will do all of the following EXCEPT

make recommendations to improve controls.

report identified weaknesses to those charged with governance.

adopt a combined audit approach.

increase the reliance placed on detailed substantive procedures.

5. A client engages in numerous foreign exchange transactions and the auditor considers that there is a risk these transactions are incorrectly stated. During the assessment, the auditor also determines that the internal controls in place help mitigate the possibility that transactions are valued incorrectly. How will the auditor assess inherent and control risk?

inherent risk as high and control risk as low

inherent risk as low and control risk as high

inherent risk as high and control risk as high

inherent risk as low and control risk as low

6. Which of the following information sources would generally be considered reliable?

information generated by an independent reputable external source

information generated by an accounting system with ineffective internal controls

unaudited information

information generated using inconsistent accounting methods

7. If an auditor determines that a control exists to mitigate the risk of material misstatement, the auditor will

immediately decide to rely on the control.

increase their reliance on detailed substantive procedures.

choose a substantive audit strategy.

test the control and determine if it is effective.

8. Which of the following does the auditor NOT consider when assessing the inherent risk of an entity?

previous experience with the client

nature of the business

entity's internal controls

type of industry

9. Audit risk will be set lower for a company

with a significant going concern issue.

with few financial statement users.

with ineffective internal controls.

where management is known for its integrity.

10. Which of the following would be considered a non-recurring item that may need to be normalized when determining materiality? Select all that apply.

unusual gains or losses

interest expense on loan repayments

management bonuses

discontinued operations

management salaries