CHAPTER 6-12 FOR MOCK MCQS SUMMARY SOLICITORS ACCOUNTS RETAKE EXA

CHAPTER 6-12 FOR MOCK MCQS SUMMARY SOLICITORS ACCOUNTS RETAKE EXAM Inherent risk differs from detection risk in that inherent risk: A. arises from the misapplication of auditing procedures. B. may be assessed in either quantitative or non-quantitative terms. C. exists independently of the financial report audit. D. can be changed at the auditor's discretion. - CORRECT ANSWER-C Which of the following would not increase inherent risk? A. Introduction of a performance-based management compensation scheme to improve efficiency and effectiveness. B. Appointing the managing director's daughter to a vacant position on the board of directors. C. To improve speed of processing, the entity ceases approval of invoices prior to payment. D. The entity decides to enter the internet market because of the high share prices being achieved by internet companies. - CORRECT ANSWER-C Inherent risk will: A. always be set at the same level as audit risk. B. be assessed after control risk is assessed. C. have a direct effect on the level of audit work completed. D. be reduced by increased audit testing. - CORRECT ANSWER-C Which of the following would increase inherent risk? A. All key operating decisions are approved by the audit committee. B. The appointment of a very successful mining CEO to head the new retail division. C. The suspension of a management compensation scheme for executives that was based on the company's share price. D. None of the given answers are correct. - CORRECT ANSWER-B A properly planned and performed audit may fail to detect a material misstatement resulting from fraud because: A. audit procedures that are effective for detecting an error may be ineffective for fraud that is concealed through collusion. B. an audit is planned and performed to provide reasonable assurance of detecting material misstatements caused by errors but not by fraud. C. the factors considered in assessing control risk indicated an increased risk of error but only a low risk of fraud in the financial report. D. the auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial report taken as a whole. - CORRECT ANSWERA Which of the following factors would indicate that there is a higher possibility of a fraud occurring for a client? A. An audit committee is introduced. B. There is no segregation of duties. C. The entity is involved in a high-technology industry. D. There are no related parties. - CORRECT ANSWER-B Which of the following items is considered a characteristic of whistleblowing? A. The whistleblower considers that there is a possibility that some misconduct may have occurred even though they have no evidence to substantiate it. B. When disclosing information the whistleblower omits information regarding his/her involvement in the misconduct. C. The disclosure is made in the public interest. D. The whistleblower believes the disclosure of the information will result in the removal of his/her superior with whom he/she has a poor relationship. - CORRECT ANSWER-C Which of the following auditing procedures is most likely to assist an auditor in identifying related-party transactions? A. Retesting ineffective controls previously reported to the audit committee. B. Sending second requests for unanswered positive confirmations of accounts receivable. C. Reviewing shareholder records for principal shareholders. D. Inspecting communications with solicitors. - CORRECT ANSWER-C An example of a mitigating factor that the auditor would consider in determining the appropriateness of the going concern assumption is: A. the entity's assets are unable to be sold separately as they are used to support the entity's plant. B. the entity has no outstanding debtors. C. the entity has fully utilised all available lines of credit. D. the entity has signed a new contract under which the entity will be the major supplier of product to the Australian Government for a two-year period. - CORRECT ANSWERD Which of the following statements is not correct? A. The auditor needs to consider only whether the entity will remain a going concern for a period of 12 months from balance date. B. The auditor needs to consider whether there are any mitigating factors that will overcome a going concern risk. C. The appropriateness of the going concern assumption must always be considered as part of the planning process. D. All the given options are correct. - CORRECT ANSWER-A An auditor has been assigned to the testing of the cut-off assertion for sales and has decided to begin by assessing control risk for this area. If the auditor's preliminary assessment of control risk in this area is low, what are the implications for the audit testing which will be performed?