Tag: Ethics

As part of his overall risk assessment, Alex, the audit partner, has concluded that detection risk must be low.

For the issue of materiality, please select the appropriate consequence of this conclusion………..?

Select ONE answer:

1. Higher
2. Lower
3. Bigger
4. Smaller

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct => If detection risk is low this means that the auditor must have a higher expectation of identifying errors and misstatements. Materiality is lower as the financial statements are more sensitive and sample sizes are increased so that more work is performed.
3. Not correct
4. Not correct

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Which ONE of the following would NOT increase inherent audit risk?

Select ONE answer:

1. A significant number of balances are based on estimates
2. The financial statements include complex transactions
3. The company is seeking to raise finance
4. Audit staff are inexperienced

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct => Incorrect sample sizes and inexperienced audit staff will affect detection risk.

This work is licensed under a Creative Commons Attribution 4.0 International License.

Which ONE of the following would NOT increase inherent audit risk?

Select ONE answer:

1. Sample sizes have been calculated incorrectly by the auditor and are too small
2. A significant number of balances are based on estimates
3. The financial statements include complex transactions
4. The company is seeking to raise finance

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > Incorrect sample sizes and inexperienced audit staff will affect detection risk.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Audit risk can be split into three components: inherent risk, control risk, and detection risk.

For each of the following examples, select the type of risk illustrated.

• Directors’ pay is related to company profitability…..…..?

Select ONE answer:

1. Inherent
2. Control
3. Detection
4. No Risk

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > Profit related pay may motivate the directors to distort the financial information, so constituting an inherent risk.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Audit risk can be split into three components: inherent risk, control risk, and detection risk.

For each of the following examples, select the type of risk illustrated.

• Senior management regularly override the system of controls….…..?

Select ONE answer:

1. Inherent
2. Control
3. Detection
4. No Risk

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct => The existence of management override increases control risk as controls may be ignored leading to an increased risk of material fraud or error.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.