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CIS_Quiz-2

The document discusses key concepts related to audit risk, including its components: inherent risk, control risk, and detection risk. It outlines the importance of internal controls and their relationship to audit procedures, emphasizing the auditor's role in assessing these risks. Additionally, it addresses the objectives of financial statement audits and the significance of professional skepticism in the auditing process.

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santiagojillian08
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8 views

CIS_Quiz-2

The document discusses key concepts related to audit risk, including its components: inherent risk, control risk, and detection risk. It outlines the importance of internal controls and their relationship to audit procedures, emphasizing the auditor's role in assessing these risks. Additionally, it addresses the objectives of financial statement audits and the significance of professional skepticism in the auditing process.

Uploaded by

santiagojillian08
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

The risk that the auditor may give an inappropriate opinion when the financial statements are
materially misstated is called
A. Detection risk
B. Business risk
C. Audit risk
D. Inherent risk
2. Audit risk has three components: inherent risk, control risk, and detection risk. Which is correct?
A. Detection risk is a function of the efficiency of an auditing procedure.
B. Cash is more susceptible to theft than an inventory of coal because it has a greater inherent
risk.
C. The risk that material misstatements will not be prevented or detected on a timely basis by
internal control can be reduced to zero by effective controls.
D. The existing levels of inherent risk, control risk, and detection risk can be changed at the
discretion of the auditor.
3. There is an inverse relationship that exists between the acceptable level of detection risk and the
A. Risk of failing to discover material misstatements.
B. Assurance provided by substantive tests.
C. Preliminary judgments about materiality levels.
D. Risk of misapplying audit process.
4. This internal control component is the foundation for all other components. It sets the tone of
the organization, provides discipline and. structure, and influences the control consciousness of
employees.
A. Control activities
B. Monitoring of controls
C. Control environment
D. The entity's risk assessment process
5. Application controls are
A. Manual or automated procedures that typically operate at a business process level and
apply to the processing of transactions by individual applications
B. Policies and procedures that relate to many applications.
C. Controls that maintain the integrity of information and security of data such as controls over
system software acquisition, change and maintenance.
D. Controls that relate to many applications and support the effective functioning of general
controls.
6. Control activities relate to the following, except
A. Segregation of duties
B. Performance reviews
C. An internal audit function
D. Authorization
7. The statements below describe the interelationship of audit risk components. Which Is false?
A. There is an inverse relationship between detection risk and the combined level of inherent
and control risks.
B. When inherent and control risks are high, the acceptable level of detection risk needs to be
low to reduce audit risk to an acceptably low level.
C. When inherent and control risks are. low, an auditor can accept a higher detection risk and
still reduce audit risk to an acceptably low level.
D. The assessed level of inherent and control risks can be sufficiently low to eliminate the need
for the auditor to perform any substantive procedures.

8. When considering an entity’s system of internal control, one of the auditor’s major concerns is to
ascertain whether internaJ control is designed ‘to provide reasonable assurance that
A. Financial statements are fairly presented.
B. The accounting manager reviews all accounting transactions.
C. Profit margins are maximized, and operational efficiency is optimized
D. Corporate morale problems are addressed immediately and effectively.

9. The primary objective of procedures performed to obtain an understanding of internal control is


to provide an auditor with
A. Knowledge necessary to plan the audit.
B. A basis for modifying tests of controls.
C. Information necessary to prepare flowcharts.
D. Evidence to use in reducing detection risk.

10. Which of the following is not an advantage of an IT system used as part of the entity's internal
control system?
A. A reduced amount of information is required to be reviewed manually.
B. Detection of potential problems only if the computer is programmed to do so.
C. The delivery, timeliness and accuracy of information are maintained as the volume of
transactions increases.
D. Potentially fewer errors as individual calculation discrepancies are reduced.
11. Detection risk is the risk that the practitioner will not detect a material misstatement that exists.
T
12. In an audit engagement, the auditor provides a high and an absolute level of assurance that the
financial statements are free of material misstatement. F
13. As defined in the standard, professional skepticism is an attitude that includes a questioning
mind, judgmental and being alert to conditions which may indicate possible misstatement due to
error or fraud, and a critical assessment of audit evidence. F
14. The objective of a financial statement audit is ‘to express an opinion as to whether an entity’s
financial statements present fairly, in all material respects, its financial position, performance,
and cash flows in accordance with an applicable financial reporting framework. T
15. The purpose of general CIS controls is to establish a framework of overall controls over the CIS
activities and to provide a reasonable level of assurance that the overall objectives of internal
control are achieved. T
16. Computer operators should have no opportunity to modify programs and data files, and should
not have programming duties or responsibility for installing new or modifying existing systems T
17. Substantive test procedures are audit procedures designed to detect material misstatements at
the assertion level. T
18. Tests of controls are audit procedures designed to evaluate the effectiveness of controls in
preventing, or detecting and correcting, material misstatements at the assertion level. T
19. There exists an inverse relationship between control risk and detection risk—that is, the greater
(lower) the assessed level of control risk, the lower (greater) the acceptable level of detection
risk. T
20. The five components of internal control are: 1. The control environment. 2. The entity's risk
assessment process. 3. The information system, including the related business processes
relevant to financial reporting, and communication, 4. Control activities. 5. Monitoring of
controls T

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