Question

revision question

5- For the forthcoming audit of Tom and Lee Limited the audit partner of Jack Lift Audits has set a low acceptable audit risk compared to last year.

The level of materiality the audit team will apply in the forthcoming audit will, therefore, be:

Select one:

a. Indeterminable as materiality is set by standard setters.

b. Higher compared to last year.

c. Lower compared to last year.

d. Unchanged from last year.

6- You are a member of the audit team of PBA Auditors, a major audit firm responsible for auditing Outback Hats Limited.

The audit partner during an audit team meeting stated that compared to past years the audit team will need to collect more evidence and do more work.

The audit partners of PBA Auditors had decided in an executive meeting the additional work load was needed because the audit partners wanted to lower the probability the audit team would not find a material misstatement.

The decision by the audit partners of PBA Auditors best represents a(n):

Select one:

a. Decrease in engagement risk.

b. Increase in inherent risk.

c. Decrease in detection risk.

d. Increase in detection risk.

7- Which of the following statements best describes a goal of the audit?

Select one:

a. Collect an insufficient amount of appropriate evidence at the least cost.

b. Collect a sufficient amount of inappropriate evidence at the least cost.

c. Collect a sufficient amount of appropriate evidence at the most cost.

d. Collect a sufficient amount of appropriate evidence at the least cost.v

8- Company policy requires that each credit sale above $10,000 requires approval of two department managers.

Examination of a sample of 200 credit sales in excess of $10,000 indicated that each transaction had been perfectly entered into the general journal and posted to the general ledger.

The audit team, however, found that from the sample 20 transactions had either been approved by only one department manager or no department manager.

This findings above suggest:

Select one:

a. Inherent risk is high and control risk is low.

b. Inherent risk is high and control risk is high.

c. Inherent risk is low and control risk is high.

d. Inherent risk is low and control risk is high.

Answer 1

5. The correct answer is " a. Indeterminable as materiality is set by standard setters." Materality cannot be determined in such a situation.

6. The correct answer is "C Decrease in detective risk". Audit team can reduce the detective risk by collecting more evidences related to any error or ommission in the financial statements.

7. The correct answer is " D Collect a sufficient amount of appropriate evidence at the least cost".

8. The correct answer is " C Inherent risk is low and control risk is high." in the given scenario.IAs the transaction is properly entered into the general journal and ledger so inherent risk is low. but, there is no control on the approval on this type of transactions as decided by the company polict that it should be approved by two department managers.

NOTE: in question no 8, options given as "C" and "D" are same. I am assuming that option D is " Inherent risk is low and control risk is low" ( permutation n combination ).