Assessing Control Risk & Tests of Controls in Financial

MULTIPLE CHOICE QUESTIONS 1.Control risk should be assessed in terms of A.Specific control procedures.C. Financial statement assertions. B.Types of potential fraud.D. Control environment factors. 2.Tests of controls are used to test whether controls are: A.Operating effectively B.Properly documented by the client C.Placed in operation or implemented D.Properly incorporated in the financial statements 3.Which of the following statements is true? A.Tests of controls are necessary if the auditor plans to use the primarily substantive approach. B.Tests of controls are necessary if the auditor plans to assess the level of control risk at maximum. C.The auditor can simultaneously obtain an understanding of internal control and perform tests of controls. D.After performing tests of controls, the auditor will always assess control risk at maximum. 4.After considering a client's internal controls, an auditor has concluded that it is well designed and is functioning as intended.Under these circumstances the auditor would most likely A.Perform tests of controls to the extent outlined in the audit program. B.Determine the control procedures that should prevent or detect errors and fraud. C.Not increase the extent of predetermined substantive tests. D.Determine whether transactions are recorded to permit preparation of financial statements in accordance with PFRS. 5.The audit risk against which the auditor and those who rely on his or her opinion require reasonable protection is a combination of two separate risks at the assertion level.The first risk is that balances, classes of transactions, or disclosures contain material misstatements. The second is that A.The auditor will reject a correct account balance as incorrect. B.Material misstatements that occur will not be detected by the audit. C.The auditor will apply an inappropriate audit procedure. D.The auditor will apply an inappropriate measure of audit materiality. 6.Which of the following statements about the auditor's response to assessed risks of material misstatement in a financial statement audit is true? A.When the risks of material misstatement are high, an auditor should reduce the amount of substantive testing. B.Reliance on internal control may be sufficient to allow the auditor to eliminate substantive testing for significant transaction classes. C.When assessing the risks of material misstatement, an auditor should not consider evidence obtained in prior audits about the operation of controls. D.Risk assessment procedures performed to obtain an understanding of an entity's internal control also may serve as tests of controls. 7.In a financial statement audit, the auditor is required to perform tests of controls when