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1 Copyright © 2014 Pearson Education, Inc. Auditing and Assurance Services, 15e (Arens) Chapter 8 Audit Planning and Analytical Procedures Learning Objective 8-1 1) A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the: A) inherent risk. B) acceptable audit risk. C) statistical risk. D) financial risk. Answer: B Terms: Measure of how wi
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  1 Copyright © 2014 Pearson Education, Inc. Auditing and Assurance Services, 15e (Arens) Chapter 8 Audit Planning and Analytical Procedures Learning Objective 8-1 1) A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the: A) inherent risk. B) acceptable audit risk. C) statistical risk. D) financial risk. Answer: B Terms: Measure of how willing auditor is to accept that the financial statements may be materially misstated after audit is completed Diff: Easy Objective: LO 8-1 AACSB: Reflective thinking skills 2) A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called: A) control risk. B) acceptable audit risk. C) statistical risk. D) inherent risk. Answer: D Terms: A measure of auditor's assessment of likelihood that there are material misstatements in an account before considering internal control Diff: Easy Objective: LO 8-1 AACSB: Reflective thinking skills  2 Copyright © 2014 Pearson Education, Inc. 3) When inherent risk is high, there will need to be: A) A lower assessment of audit risk More evidence accumulated by the auditor Yes Yes B) A lower assessment of audit risk More evidence accumulated by the auditor  No No C) A lower assessment of audit risk More evidence accumulated by the auditor Yes No D) A lower assessment of audit risk More evidence accumulated by the auditor  No Yes Answer: D Terms: Inherent risk is high Diff: Moderate Objective: LO 8-1 AACSB: Reflective thinking skills 4) In what order should the following steps occur? A. Assess client business risk B. Understand the client's business and industry C. Perform preliminary analytical procedures D. Assess acceptable audit risk A) D, B, C, A B) B, A, C, D C) B, D, A, C D) D, C, B, A Answer: B Terms: Steps in planning an audit Diff: Moderate Objective: LO 8-1 AACSB: Reflective thinking skills  3 Copyright © 2014 Pearson Education, Inc. 5) The auditor uses knowledge gained from the understanding of the client's business and industry to assess: A) client business risk. B) control risk. C) inherent risk. D) audit risk. Answer: A Terms: First standard of fieldwork; Proper planning Diff: Challenging Objective: LO 8-1 AACSB: Analytic skills 6) There are three main reasons why an auditor should properly plan audit engagements. Discuss each of these reasons. Answer: Three reasons why an auditor should properly plan audit engagements are: ã  To enable the auditor to obtain sufficient competent evidence for the circumstances. This is essential for minimizing legal liability and maintaining a good profession reputation. ã  To help keep audit costs reasonable. Given the competitive auditing environment, keeping costs reasonable helps the firm obtain and retain clients. ã  To avoid misunderstandings with the client. This is important for good client relations. Terms: Reasons auditor should properly plan audit engagement Diff: Moderate Objective: LO 8-1 AACSB: Reflective thinking skills 7) When an auditor decides there is higher inherent risk for an account, one potential effect is that more audit evidence will be required for that account. A) True B) False Answer: A Terms: Inherent risk Diff: Easy Objective: LO 8-1 AACSB: Reflective thinking skills 8) As acceptable audit risk is decreased, the likely cost of conducting an audit increases. A) True B) False Answer: A Terms: Acceptable audit risk Diff: Easy Objective: LO 8-1 AACSB: Reflective thinking skills  4 Copyright © 2014 Pearson Education, Inc. 9) Obtaining sufficient appropriate evidence is essential if the CPA firm is to minimize legal liability. A) True B) False Answer: A Terms: Acceptable audit risk Diff: Moderate Objective: LO 8-1 AACSB: Reflective thinking skills 10) A 100 % audit risk is complete certainty. A) True B) False Answer: B Terms: Acceptable audit risk Diff: Moderate Objective: LO 8-1 AACSB: Reflective thinking skills
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