10. Which of the following is a reason that the auditors may change the preliminary judgment about materiality? A) The auditors decide that the preliminary judgment was too large. B) The auditors decide that the preliminary judgment was too small. C) Client circumstance may have changed due to qualitative events. D) all of the above

11. When management has an adequate level of integrity for the auditor to accept the engagement but cannot be regarded as completely honest in all dealings, auditors normally

A) reduce acceptable audit risk and increase inherent risk.

B) reduce inherent risk and control risk.

C) increase inherent risk and control risk.

D) increase acceptable audit risk and reduce inherent risk.

12. A company is concerned with the theft of cash after the sale has been recorded. One way in which fraudsters conceal the theft is by a process called "lapping." Which of the following best describes lapping?

A) reduce the customer's account by recording a sales return

B) write off the customer's account

C) apply the payment from another customer to the customer's account

D) reduce the customer's account by recording a sales allowance

13. The auditor determines that Matthews Company occupies the 3rd floor of an office tower for which it pays no rent. The most likely explanation is

A) they got lucky the landlord hasn't noticed the lack of payments.

B) the landlord has weak internal controls over billings.

C) a related party transaction in which a major shareholder owns the office tower.

D) Matthews Company is engaging in fraudulent activities.