Chapter 04 – Risk Assessment
1. Audit risk is the auditor’s exposure to loss or injury of his or her reputation from events
arising in connection with financial statements audited.
2. Engagement risk is the auditor’s exposure to loss or injury of his or her reputation from
events arising in connection with financial statements audited.
3. The components of the audit risk model include inherent risk, control risk, and detection
risk.
Chapter 04 – Risk Assessment
4. Inherent risk is the susceptibility of an assertion to material misstatement, assuming no
related controls.
5. Professional judgment must be used when evaluating business risk.
6. The risk of a material misstatement includes inherent risk and sampling risk.
7. The combination of inherent risk and control risk is referred to as client risk.
Chapter 04 – Risk Assessment
8. Inherent risk includes sampling risk and detection risk.
9. Engagement risk is
10. Client risk as defined in the text is
Chapter 04 – Risk Assessment
11. Under Statements on Auditing Standards, which of the following would be classified as an
error?
12. When assessing the risk of material misstatement, auditors evaluate the reasonableness of
an entity’s accounting estimates. An auditor normally would be concerned about assumptions
that are
Chapter 04 – Risk Assessment
13. Which of the following characteristics most likely would heighten an auditor’s concern
about the risk of intentional manipulation of financial statements?
14. Which of the following is a known misstatement?
15. Engagement risk can be eliminated by
Chapter 04 – Risk Assessment
16. The achieved (actual) level of audit risk
17. An auditor knows that an audit client operating in an industry in which common stock is
valued based on the price-earnings ratio will soon make an initial public offering. All of the
following are true except:
Chapter 04 – Risk Assessment
18. The risk that an auditor will conclude, based on substantive procedures, that a material error
does not exist in an account balance when, in fact, such an error does exist is referred to as
19. The risk of material misstatement differs from detection risk in that it
Chapter 04 – Risk Assessment
20. All of the following are inherent risk factors that are pervasive to the financial statements
except:
21. When an auditor increases the assessed level of risk of material misstatement because
certain control procedures were determined to be ineffective, the auditor would most likely
increase the
Chapter 04 – Risk Assessment
22. On the basis of audit evidence gathered and evaluated, an auditor decides to increase the
assessed level of risk of material misstatement from that originally planned. To achieve an
overall audit risk level that is substantially the same as the planned audit risk level, the auditor
would
23. The risk of material misstatement includes which of the following?
Chapter 04 – Risk Assessment
24. An auditor learns that a client employee in control of inventory gets divorced and is
responsible for paying a large amount of child support. All of the following for the audit of
25. Which of the following audit risk components may be assessed in qualitative terms?
Chapter 04 – Risk Assessment
26. When an entity moves into a significant new line of business, all of the following increase
except:
27. Which of the following procedures would not be used to obtain an understanding of the
entity and its environment?
Chapter 04 – Risk Assessment
28. Which of the following is not an important consideration in an auditor’s evaluation of an
entity’s business risk?
29. Which of the following is a source of detection risk?
Chapter 04 – Risk Assessment
30. In general, material frauds perpetrated by which of the following are most difficult to
detect?
31. Which of the following circumstances most likely would cause an auditor to believe that
material misstatements may exist in an entity’s financial statements?
Chapter 04 – Risk Assessment
32. The primary responsibility for preventing fraud in an organization lies with
33. Which of the following is not a misstatement of the financial statements?