1. When inherent risk is assessed as higher(i.e. more material errors are likely toexist) and control risk is assessed the same from one year to thenext, what is the likely effect on detectionrisk?

A. Detection risk will increase.

B. Detection risk will stay the same.

C. Detection risk will decrease.

D. Detection risk will need less documentation.

2. The risk that anauditor's procedures will lead to the conclusion that a material error does not exist in an account balancewhen, infact, such error does exist is referred to as

A. planned detection risk.

B. control risk.

C. acceptable audit risk.

D. inherent risk.

3. Because control risk and inherent risk vary from cycle tocycle, account toaccount, or objective toobjective,

A. planned detection risk will remain constant but audit evidence will vary.

B. planned detection risk and required audit evidence will also vary.

C. acceptable audit risk must also change.

D. planned detection risk will vary but audit evidence will remain constant.

4. The audit risk model is used primarily

A. while doing tests of controls.

B. to determine the type of opinion to express.

C. to evaluate the evidence that has been gathered.

D. for planning purposes in determining how much evidence to accumulate.

5. When external users place heavy reliance on the financialstatements, it is appropriate that

A. inherent risk be increased.

B. acceptable audit risk be decreased.

C. acceptable audit risk be increased.

D. inherent risk be decreased.

6. A PA is working on the audit of a publicly held corporation. At what level will the acceptable auditor likely set auditrisk?

A. high

B. very high

C. medium

D. low

7. A PA firm can experience high levels of business risk if the audit firm

A. has a generous vacation policy for its staff.

B. experiences significant litigation or has clients declare bankruptcy.

C. does a poor job preparing client risk profiles.

D. pays its employees wages that are not in line with the market.

8. Which of the following would be a signal of possible problems with managementintegrity?

A. frequent disagreements with regulators and the Canada Revenue Agency

B. rapidly declining profits or increasing losses over a period of years

C. reliance on debt rather than equity for financing permanent assets

D. rotation of holidays in the supervisory area over a period of months

9. You generally consider your auditclient's management to be honest.However, they do have a bias towards wanting to understate their income to lower income taxes. How would this bias be implemented in the audit riskmodel?

A. reduce acceptable audit risk and increase inherent risk

B. increase acceptable audit risk and reduce inherent risk

C. increase acceptable audit risk and increase inherent risk

D. reduce acceptable audit risk and reduce inherent risk

10. How much control does the auditor have over inherentrisk?

A. The auditor considers inherent risk for the business as a whole(some control).

B. The auditor calculates inherent risk values as a residual(no control).

C. The auditor assesses the factors that make up inherent risk(no control).

D. The auditor adjusts the controls that are considered(high level ofcontrol).

11. If detection risk isreduced, the amount of evidence the auditor accumulates will

A. increase.

B. decrease.

C. remain unchanged.

D. be indeterminate.

12. If acceptable audit risk isincreased, what happens to detectionrisk?

A. It increases.

B. It stays the same.

C. It changes based upon the audit procedures conducted.

D. It decreases.

13. All other factors heldconstant, if the auditor decreases acceptable audit risk then

A. less supervision of the audit team will be required.

B. total audit evidence and audit costs will increase.

C. it will also be necessary to decrease either control risk or inherent risk.

D. there will be less documentation in the audit file.