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Question(s) / Instruction(s):

73.
easy
     The auditor’s preliminary judgment about materiality is the maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decisions of reasonable users.
a.     True
b.     False

74.
easy
     There is no precise definition of materiality in the professional literature.
a.     True
b.     False

75.
easy
     Net income before taxes is normally the most important base for deciding what is material.
a.     True
b.     False

76.
easy
     Most practitioners allocate the preliminary judgment about materiality to balance sheet, rather than income statement, accounts.
a.     True
b.     False

77.
easy
     The primary purpose of allocating the preliminary judgment about materiality to financial statement accounts is to help the auditor decide the appropriate evidence to accumulate for each account.
a.     True
b.     False

78.
easy
     Auditors often use prior year financial statement balances to establish their preliminary judgment about materiality in planning the current year’s audit.
a.     True
b.     False

79.
easy
     If acceptable audit risk is low, and inherent risk and control risk are both high, then planned detection risk should be high.
a.     True
b.     False
80.
easy
     Inherent risk and planned detection risk are inversely related; i.e., as inherent risk increases, planned detection risk should decrease, ceteris paribus.
a.     True
b.     False


81.
easy
     Acceptable audit risk and planned detection risk are inversely related; i.e., as acceptable audit risk increases, planned detection risk should decrease, ceteris paribus.
a.     True
b.     False

82.
easy
     The most important element of the audit risk model is control risk.
a.     True
b.     False

83.
easy
     Auditors are required to test any internal controls they believe have not been operating effectively during the period under audit.
a.     True
b.     False

84.
easy
     If an auditor believes the client will have financial difficulties after the audit report is issued, and external users will be relying heavily on the financial statements, the auditor will probably set acceptable audit risk as high.
a.     True
b.     False

85.
medium
     Auditors have difficulty applying the concept of materiality in practice because they often do not know who the users of the financial statements are or what decisions will be made.
a.     True
b.     False

86.
medium
     Statements on Auditing Standards provide detailed, objective guidance on how auditors are to establish a preliminary materiality level, thus eliminating the need for subjective auditor judgment in this task.
a.     True
b.     False

87.
medium
     If the preliminary judgment of materiality increases, the amount of audit evidence required will also increase.
a.     True
b.     False

88.
medium
     Tolerable misstatement is the maximum combined total of all misstatements in the financial statements that the auditor is willing to allow, or tolerate, when issuing a standard unqualified opinion.
a.     True
b.     False
89.
medium
     If an auditor assigns a tolerable misstatement of $1,000 to accounts payable, he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned.
a.     True
b.     False
90.
medium
     To maximize audit efficiency, the auditor should allocate less tolerable misstatement to accounts that can be verified by using low cost audit procedures, such as analytical procedures, than to accounts that are more costly to audit.
a.     True
b.     False

91.
medium
     Acceptable audit risk and the amount of substantive evidence required are inversely related; i.e., as acceptable audit risk increases, the amount of substantive evidence the auditor plans to accumulate should decrease.
a.     True
b.     False
92.
medium
     Control risk and the amount of substantive evidence required are directly related; i.e., as control risk increases, the amount of substantive evidence the auditor plans to accumulate should increase.
a.     True
b.     False

93.
medium
     Inherent risk and control risk are directly related; i.e., as inherent risk increases, control risk also increases.
a.     True
b.     False

94.
medium
     An acceptable audit risk assessment of low indicates a risky client requiring more extensive evidence, assignment of more experienced personnel, and/or a more extensive review of audit files.
a.     True
b.     False

95.
challenging
     Audit assurance is the complement of planned detection risk, that is, one minus planned detection risk.
a.     True
b.     False

 

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