Chapter9---final

9-1CHAPTER9Multiple-ChoiceQuestions1.easyaIfitisprobablethatthejudgmentofareasonablepersonwouldhavebeenchangedorinfluencedbytheomissionormisstatementofinformation,thenthatinformationis,bydefinitionofFASBStatementNo.2:a.material.b.insignificant.c.significant.d.relevant.2.easyThepreliminaryjudgmentaboutmaterialityistheamountbywhichtheauditorbelievesthestatementscouldbemisstatedandstillnotaffectthedecisionsofreasonableusers.ba.minimumb.maximumc.meanaveraged.medianaverage3.easyAuditorsareresponsiblefordeterminingwhetherfinancialstatementsaremateriallymisstated,soupondiscoveringamaterialmisstatementtheymustbringittotheattentionof:da.regulators.b.theauditfirm’smanagingpartner.c.nooneinparticular.d.theclient’smanagement.4.TheFASBdefinitionofmaterialityemphasizeswhatclassoffinancialstatementusers?easya.Regulators.cb.Informedinvestors.c.Reasonablepersons.d.Potentialinvestors.5.easyWhenauditorsallocatethepreliminaryjudgmentaboutmaterialitytoaccountbalances,thematerialityallocatedtoanygivenaccountbalanceisreferredtoas:da.thematerialityrange.b.theerrorrange.c.tolerablemateriality.d.tolerablemisstatement.6.Whydoauditorsestablishapreliminaryjudgmentaboutmateriality?easya.Todeterminetheappropriatelevelofauditexperiencerequiredforthework.cb.Sothattheclientcanknowwhatrecordstomakeavailabletotheauditor.c.Toplantheappropriateauditevidencetoaccumulateanddevelopanoverallauditstrategy.d.Noneoftheabove.7.easyAuditorsare_____todecideonthecombinedamountofmisstatementsinthefinancialstatementsthattheywouldconsidermaterialearlyintheaudit.ba.permittedb.requiredc.notallowedd.stronglyencouraged9-28.Ifanauditorestablishesarelativelyhighlevelformateriality,thentheauditorwill:easya.accumulatemoreevidencethanifalowerlevelhadbeenset.bb.accumulatelessevidencethanifalowerlevelhadbeenset.c.accumulateapproximatelythesameevidenceaswouldbethecasewerematerialitylower.d.accumulateanundeterminedamountofevidence.9.easyThepreliminaryjudgmentaboutmaterialityandtheamountofauditevidenceaccumulatedare_____related.da.directlyb.indirectlyc.notd.inversely10.Afterthepreliminaryjudgmentaboutmaterialityhasbeenestablished,auditorsmay:easya.notadjustit.db.adjustitdownwardonly.c.adjustitupwardonly.d.adjustiteitherdownwardorupward.11.Inanauditareathathasahigherinherentrisk,itwouldbeprudentto:easya.increasetheamountofauditevidencegathered.db.assignmoreexperiencedstafftothatarea.c.reducethetolerablemisstatementforthearea.d.doalloftheabove.12.easyWhichofthefollowingisleastlikelytobeappropriateasthebasisfordeterminingthepreliminaryjudgmentaboutmaterialityintheauditoffinancialstatements?da.Netincomebeforetaxes.b.Currentassets.c.Owners’equity.d.Inventory.13.easyAuditingstandards_____thatthebasisusedtodeterminethepreliminaryjudgmentaboutmaterialitybedocumentedintheauditfiles.ca.permitb.donotallowc.required.stronglyencourage14.easyAmountsinvolvingfraudareusuallyconsidered_____importantthanunintentionalerrorsofequaldollaramounts.da.lessb.nolessc.nomored.more9-315.easyWhichofthefollowingqualitativefactorsmaysignificantlyinfluencewhetheranitemisdeemedtobematerial?da.Misstatementsthatareotherwiseminormaybematerialiftherearepossibleconsequencesarisingfromcontractualobligations.b.Misstatementsthatareotherwiseimmaterialmaybematerialiftheyaffectatrendinearnings.c.Amountsinvolvingfraudareusuallyconsideredmoreimportantthanunintentionalerrorsofequaldollaramounts.d.Alloftheabovemayinfluencemateriality.16.Auditorsgenerallyallocatethepreliminaryjudgmentaboutmaterialitytothe:easya.balancesheetonly.ab.incomestatementonly.c.incomestatementandbalancesheet.d.statementofcashflows.17.Whichofthefollowingstatementsregardinginherentriskiscorrect?easyca.Theinherentriskassignedintheauditriskmodelisunaffectedbytheauditor’sexperiencewithclient’sorganization.b.Mostauditorssetalowinherentriskinthefirstyearofanauditandincreaseitifexperienceshowsthatitwasincorrect.c.Mostauditorssetahighinherentriskinthefirstyearofanauditandreduceitinsubsequentyearsastheygainexperience,evenwhenthereisinherentrisk.d.Theinherentriskassignedintheauditriskmodelisdependentuponthestrengthsinclient’sinternalcontrolsystem.18.easyAuditorsbegintheirassessmentsofinherentriskduringauditplanning.Whichofthefollowingwouldnothelpinassessinginherentriskduringtheplanningphase?aa.Obtainingclient’sagreementontheengagementletter.b.Obtainingknowledgeabouttheclient’sbusinessandindustry.c.Touringtheclient’splantandoffices.d.Identifyingrelatedparties.19.mediumbAuditorscommonlyallocatematerialitytobalancesheetaccountsratherthanincomestatementaccountsbecausemostincomestatementmisstatementshavea(n)_____effectonthebalancesheet.a.lessb.equalc.undeterminedd.more20.mediumWhichofthefollowingisnotacorrectstatementregardingtheallocationofthepreliminaryjudgmentaboutmaterialitytobalancesheetaccounts?ba.Auditorsexpectcertainaccountstohavemoremisstatementsthanothers.b.Theallocationhasvirtuallynoeffectonauditcostsbecausetheauditormustcollectsufficientappropriateauditevidence.c.Auditorsexpecttoidentifyoverstatementsaswellasunderstatementsintheaccounts.d.Relativeau