1. Most audit work in a financial statement audit consists of obtaining and evaluating evidence about A. Internal controls. B. Assertions. C. Fraud. D. Material errors. 2. The existence of audit risk is recognized by the statement in the auditor's standard report that the A. Auditor is responsible for expressing an opinion on the financial statements, which are the responsibility of management. B. Financial statements are presented fairly, in all material respects, in conformity with GAAP. C. Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. D. Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement. 3. Analytical procedures enable the internal auditor to predict the balance or quantity of an item. Information to develop this estimate can be obtained by all of the following except A. Tracing transactions through the system to determine whether procedures are being applied as prescribed. B. Comparing financial data with data for comparable prior periods, anticipated results (e.g., budgets and forecasts), and similar data for the industry in which the entity operates. C. Studying the relationships of elements of financial data that would be expected to conform to a predictable pattern based upon the entity's experience. D. Studying the relationships of financial data with relevant non-financial data. 4. Analytical Procedures can be best categorized as A. Substantive tests. B. Tests of controls C. Qualitative tests. D. Budget comparisons. 5. The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is A. Audit risk. B. Inherent risk. C. Control risk. D. Detection risk. 6. Inherent risk and control risk differ from detection risk in that they A. Arise from the misapplication of auditing procedures. B. May be assessed in either quantitative or non-quantitative terms. C. Exist independently of the financial statement audit. D. Can be changed at the auditor's discretion. 7. The acceptable level of detection risk is inversely related to the A. Assurance provided by substantive tests. B. Risk of misapplying auditing procedures. C. Preliminary judgment about materiality levels. D. Risk of failing to discover material misstatements. 8. As the acceptable level of detection risk decreases, an auditor may A. Reduce substantive testing by relying on the assessments of inherent risk and control risk. B. Postpone the planned timing of substantive tests from interim dates to the year-end. C. Eliminate the assessed level of inherent risk from consideration as a planning, factor. D. Lower the assessed level of control risk from the maximum level to below the maximum. 9. Holding other planning considerations equal, a decrease in the amount of misstatements in a class of transactions that an auditor could tolerate most likely would cause the auditor to A. Apply the planned substantive tests prior to the balance sheet date. B. Perform the planned auditing procedures closer to the balance sheet date. C. Increase the assessed level of control risk for relevant financial statement assertions. D. Decrease the extent of auditing procedures to be applied to the class of transactions. 10. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality? A. The anticipated sample size of the planned substantive tests. B. The entity's annualized interim financial statements. C. The results of the internal control questionnaire. D. The contents of the management representation letter. 11. Which of the following is a false statement about materiality? A. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important. B. An auditor considers materiality for planning purposes in terms of the largest aggregate C level of misstatements that could be material to anyone of the financial statements. C. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. D. An auditors consideration of materiality is influenced by the auditors perception of the needs of a reasonable person who will rely on the financial statement. 12. The objective of tests of details of transactions performed as substantive tests is to A. Comply with generally accepted auditing standards. B. Attain assurance about the reliability of the accounting system. C. Detect material misstatements in the financial statements. D. Evaluate whether management's policies and procedures operated effectively. 13. In testing the existence assertion for an asset, an auditor ordinarily works from the A. Financial statements to the potentially unrecorded items. B. Potentially unrecorded items to the financial statements. C. Accounting records to the supporting evidence. D. Supporting evidence to the accounting records. 14. An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management's financial statement assertion(s) of Presentation Existence or And Disclosure Occurrence A. Yes Yes B. Yes No C. No Yes D. No No 15. Which of the following statements reflects an auditor's responsibility for detecting errors and fraud? A. An auditor is responsible for detecting employee errors and simple fraud, but not for discovering fraudulent acts involving employee collusion or management override. B. An auditor should plan the audit to detect errors and fraud that are caused by departures from GAAP. C. An auditor is not responsible for detecting errors and fraud unless the application of GAAS would result in such detection. D. An auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements. 16. Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements? A. Management places little emphasis on meeting earnings projections of external parties. B. The board of directors oversees the financial reporting process and internal control. C. Reportable conditions previously communicated to management are not corrected. D. Transactions selected for testing are not supported by proper documentation. 17. The established scope of the engagement should be sufficient to satisfy the objectives of the engagement. When developing the objectives of the engagement, the internal auditor should consider the A. Probability of significant noncompliance. B. The information included in the engagement work program. C. The results of engagement procedures. D. Resources required. 18. Which of the following is the best explanation of the difference, if any, between engagement objectives and procedures? A. Procedures establish broad general goals; objectives specify the detailed work to be performed. B. Objectives are tailor-made for each engagement; procedures are generic in application. C. Objectives define specific desired accomplishments; procedures provide the means of achieving objectives. D. Procedures and objectives are essentially the same. 19. In planning an engagement, the internal auditor should establish objectives and procedures to address the risk associated with the activity. Risk is defined as A. The possibility that the balance or class of transactions and related assertions contains misstatements that could be material to the financial statements. B. The uncertainty of the occurrence of an event that could affect the achievement of objectives. C. The failure to adhere to organizational policies, plans, and procedures or to comply with relevant laws and regulations. D. The failure to accomplish established objectives and goals for operations or programs. 20. Writing an engagement work program occurs at which stage of the engagement? A. During the planning stage. B. Subsequent to evaluating risk management and control systems. C. As the engagement is performed. D. At the end of each engagement when the standard work program should be revised for the next engagement to ensure coverage of noted problem areas