AUD Sample CPA Exam Questions

Weekly Review Quiz #390 – AUD: Audit Risk

Thank you for taking our Auditing and Attestation (AUD) review quiz. Check back again for five new sample AUD CPA questions to help you prepare for the exam.

Question 1

Which of the following is a definition of control risk?

  1. The risk that a material misstatement will not be prevented or detected on a timely basis by the client’s internal controls.
  2. The risk that the auditor will not detect a material misstatement.
  3. The risk that the auditor’s assessment of internal controls will be at less than the maximum level.
  4. The susceptibility of material misstatement assuming there are no related internal control, policies, or procedures.

The correct answer is: A.

A. Correct! The failure of internal control to prevent or detect a material misstatement on a timely basis is the meaning of control risk.

B. Incorrect… This is the definition of detection risk.

C. Incorrect… This is a nonsense answer. This represents an assessment that the auditor might make, but it is not a risk as such. The auditor may properly assess control risk at the maximum level or at less than the maximum level, which has implications for the level of detection risk that is appropriate in the circumstances.

D. Incorrect… This is the definition of inherent risk.

Question 2

Which of the following courses of action is the most appropriate if an auditor concludes that there is a high risk of material misstatement?

  1. Use smaller, rather than larger, sample sizes.
  2. Perform substantive tests as of an interim date.
  3. Select more effective substantive tests.
  4. Increase of tests of controls.

The correct answer is: C.

A. Incorrect… Decreasing sample sizes would increase detection risk. That would be inappropriate when there is a high risk of material misstatement.

B. Incorrect… Performing important substantive procedures at an interim date would increase detection risk. That would be inappropriate when there is a high risk of material misstatement.

C. Correct! When there is a high risk of material misstatement, the auditor would want to decrease detection risk. That can be accomplished by emphasizing procedures that result in a stronger basis for conclusions, such as performing more effective substantive tests.

D. Incorrect… It would not be sensible to increase tests of control when there is a high risk of material misstatement, which suggests high control risk. The auditor would not rely on ineffective controls, so tests of control would not be performed in such circumstances.

Question 3

Inherent risk and control risk differ from detection risk in which of the following ways?

  1. Inherent risk and control risk are calculated by the client.
  2. Inherent risk and control risk exist independently of the audit.
  3. Inherent risk and control risk are controlled by the auditor.
  4. Inherent risk and control risk exist as a result of the auditor’s judgment about materiality.

The correct answer is: B.

A. Incorrect… Inherent risk and control risk are not calculated by the entity. They comprise the risk of material misstatement that reflects management’s responsibility for the design and implementation of the entity’s internal control.

B. Correct! Inherent risk and control risk comprise the risk of material misstatement, which the auditor is obligated to assess. The auditor is responsible for designing the audit procedures to be responsive to the assessed risk of material misstatement, which exists independently of the audit itself.

C. Incorrect… The auditor is responsible for assessing the risk of material misstatement, which is comprised of inherent risk and control risk. However, the auditor does not control those risks.

D. Incorrect… Inherent risk and control risk exist regardless of the auditor’s judgment about materiality. Of course, the specific probability associated with the risk of material misstatement is affected by the materiality level specified by the auditor.

Question 4

When an auditor increases the assessed level of control risk because certain control procedures were determined to be ineffective, the auditor would most likely increase the

  1. Extent of tests of controls.
  2. Level of detection risk.
  3. Extent of tests of details.
  4. Level of inherent risk.

The correct answer is: C.

A. Incorrect… If controls are determined to be ineffective, it won’t make any sense for the auditor to increase the testing of such controls. Tests of controls are performed to reduce substantive testing. Testing a control that is known to be ineffective will not enable substantive tests to be reduced.

B. Incorrect… An increase in the assessed level of control risk means that the risk of a material misstatement occurring and not being detected has increased. To offset that increased risk, the auditor should make decisions that decrease the level of detection risk.

C. Correct! An increase in the assessed level of control risk means that the risk of a material misstatement occurring and not being detected has increased. To offset that increased risk, the auditor should make decisions that decrease the level of detection risk. Increasing the emphasis on tests of details would decrease detection risk.

D. Incorrect… An increase in the assessed level of control risk does not impact the level of inherent risk. Inherent risk is assessed before control risk is assessed, and the control risk assessment does not affect the assessment of inherent risk.

Question 5

As the acceptable level of detection risk decreases, an auditor may

  1. Reduce substantive testing by relying on the assessments of inherent risk and control risk.
  2. Postpone the planned timing of substantive tests from interim dates to the year-end.
  3. Eliminate the assessed level of inherent risk from consideration as a planning factor.
  4. Lower the assessed level of control risk from the maximum level to below the maximum

The correct answer is: B.

A. Incorrect… Decreases in the acceptable level of detection risk result in an increase in the assurance to be obtained from substantive testing. Therefore, reducing substantive testing would not be correct.

B. Correct! Decreases in the acceptable level of detection risk result in an increase in the assurance to be obtained from substantive testing. Performing substantive tests at year-end, rather than at interim, will provide increased assurance.

C. Incorrect… Professional standards require the auditor to consider the assessed level of inherent risk in planning the audit. It cannot be eliminated as a planning factor.

D. Incorrect… Decreases in the assessed level of control risk should not be made as a result of decreases in detection risk. Lowering control risk below maximum is justified by the performance of tests of controls. A reduction in control risk would then result in an INCREASE in detection risk.

End of Quiz

We hope you found this week’s quiz helpful. These questions are just a small sample of what you will find in Wiley CPAexcel. Visit our Weekly Review Quiz Archive to view past quizzes with answers and rationales. If you haven’t already done so, Sign Up to receive our free review quizzes every week via email.

Our courseware contains over 2,600 pages of electronic study text, over 5,500 proficiency questions, over 5,100 past exam questions, over 4,200 electronic flashcards, over 450 task-based simulations and personalized progress reports to manage and track your mastery of the material. Learn more about Wiley CPAexcel.

cpaexcel-popquiz-vb