revision question 5- For the f
revision question
5- For the forthcoming audit of Tom and Lee Limited the auditpartner of Jack Lift Audits has set a low acceptable audit riskcompared to last year.
The level of materiality the audit team will apply in theforthcoming 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 majoraudit firm responsible for auditing Outback Hats Limited.
The audit partner during an audit team meeting stated thatcompared to past years the audit team will need to collect moreevidence and do more work.
The audit partners of PBA Auditors had decided in an executivemeeting the additional work load was needed because the auditpartners wanted to lower the probability the audit team would notfind a material misstatement.
The decision by the audit partners of PBA Auditors bestrepresents 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 ofthe audit?
Select one:
a. Collect an insufficient amount of appropriate evidence at theleast cost.
b. Collect a sufficient amount of inappropriate evidence at theleast cost.
c. Collect a sufficient amount of appropriate evidence at themost cost.
d. Collect a sufficient amount of appropriate evidence at theleast cost.v
8- Company policy requires that each credit sale above $10,000requires approval of two department managers.
Examination of a sample of 200 credit sales in excess of $10,000indicated that each transaction had been perfectly entered into thegeneral journal and posted to the general ledger.
The audit team, however, found that from the sample 20transactions had either been approved by only one departmentmanager 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:
5. The correct answer is ” a. Indeterminable as materiality isset by standard setters.” Materality cannot be determined in such asituation.
6. The correct answer is “C Decrease in detective risk”. Auditteam can reduce the detective risk by collecting more evidencesrelated to any error or ommission in the financial statements.
7. The correct answer is ” D Collect a sufficient amount ofappropriate evidence at the least cost”.
8. The correct answer is ” C Inherent risk is low and controlrisk is high.” in the given scenario.IAs the transaction isproperly entered into the general journal and ledger so inherentrisk is low. but, there is no control on the approval on this typeof transactions as decided by the company polict that it should beapproved 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 andcontrol risk is low” ( permutation n combination).
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