Methyl Ann R.

Godoy December 13, 2019

BSA III
Auditing 411 1:30-2:30pm
Prof. Devzon U. Porras

Assignment-Planning
PSA 300

1. The development of a general strategy and a detailed approach for the

expected nature, timing, and extent of audit refers to

a. Supervision b. Audit Procedures

c. Directing d. Planning

2. Adequate planning of the audit work helps the auditor of accomplishing the
following objectives, except:

a. Ensuring that appropriate attention is devoted to important areas of the

audit.

b. Identifying potential problems.

c. The audit work is completed expeditiously.

d. Gathering of all corroborating audit evidence.

3. The extent of planning will vary according to any of the following, except

a. Size of the audit entity.

b. Auditor’s experience with the entity and knowledge of the business.

c. The complexity of the audit engagement.

d. The assessed level of control risk.

4. Which of the following is least likely considered by the auditor when
preparing the audit program?

a. Specific assessments of inherent and control risks.

b. Required level of assurance to be provided by substantive procedures.

c. Timing of test of controls and substantive procedures.

d. The type of opinion expressed in prior audit.

5. Which of the following situations would most likely require special audit
planning by the auditor?

a. Some items of factory and office equipment do not bear identification

numbers.

b. Depreciation methods used on the client’s tax return differ from those
used on the books.

c. Assets costing less than P5,000 are expensed even though the expected
life exceeds one year.

d. Inventory comprises precious stones.

6. As part of audit planning, CPAs should design audit programs for each
individual audit and should include audit steps and procedures to

a. Detect and eliminate fraud.

b. Increase the amount of management information available.

c. Provide assurances that the objectives of the audit are met.

d. Ensure that only material items are audited.

7. An audit program provides proof that

a. Sufficient competent evidential mater was obtained

b. The work was adequately planned

c. There was compliance with generally accepted standards of reporting

d. There is a proper study and evaluation of internal control.

8. Which of the following is not a component of audit planning?

a. Observing the client’s annual physical inventory taking and making test
counts of selected items.

b. Making arrangements with the client concerning the timing of audit

field work and use of the client’s staff in completing certain phrases of the
examination.

c. Obtaining an understanding of the business.

d. Developing audit programs.

9. Which of the following factors most likely would cause an auditor not to
accept a new audit engagement?

a. An inadequate understanding of the entity’s internal control.

b. The close proximity to the end of the entity’s fiscal year.

c. Concluding that the entity’s management probably lacks integrity.

d. An inability to perform preliminary analytical procedures before
assessing control risk.

10. The knowledge of the business is a frame of reference within which the
auditor exercises professional judgment. This assists the auditor in carrying
out the following objectives, except:

a. Assessing risks and identifying problems.

b. Evaluating audit evidence

c. Determining the audit opinion to be expressed.

d. Planning and performing the audit effectively and efficiently.

11. Before accepting an engagement to audit a new client, an auditor is

required to

a. Make inquiries of the predecessor auditor after obtaining the

consent of the prospective client.

b. Obtain the prospective client’s signature to the engagement

letter.

c. Prepare a memorandum setting forth the staffing requirements

and documenting the preliminary plan.

d. Discuss the management representation letter with the

prospective client’s audit committee.

12. Upon discovering material misstatements in a client’s financial statements

that the client would not revise, an auditor withdrew from the engagement. If
asked by the successor auditor about the termination of the engagement, the
predecessor auditor should

a. State that he found material misstatements that the client would

not revise.

b. Suggest that the successor ask the client.

c. Suggest that the successor obtain the client’s permission to

discuss the reasons.

d. Indicate that a misunderstanding occurred.

13. Before accepting an engagement to audit a new client, a CPA is required

to obtain

a. An understanding of the prospective client’s industry and

business.

b. The prospective client’s signature to the engagement letter.

c. A preliminary understanding of the prospective client’s control

environment.

d. The prospective client’s consent to make inquiries of the

predecessor auditor, if any.

14. A successor auditor should request the new client to authorize the
predecessor auditor to allow a review of the predecessor’s

Engagement Letter Working Paper

a. Yes Yes

b. Yes No
 c. No Yes

d. No No

15. A successor auditor most likely would make specific inquiries of the
predecessor auditor regarding

a. Specialized accounting principles of the client’s industry.

b. The competency of the client’s internal audit staff.

c. The uncertainty inherent in applying sampling procedure.

d. Disagreements with management as to auditing procedures.

16. In auditing the financial statements of Star Corporation, Mae discovered

information leading Mae to believe that Star’s prior year’s financial statements,
which were audited by Ana, require substantial revisions. Under these
circumstances, Mae should

a. Notify Star’s audit committee and stockholders that the prior

year’s financial statements cannot be relied on.

b. Request Star to reissue the prior year’s financial statements with

the appropriate revisions.

c. Notify Ana about the information and make inquiries about the
integrity of Star’s management.

d. Request Star to arrange a meeting among the three parties to

resolve the matter.
17. Babes, CPA, have been retained to audit the financial statement of Cristy
Company. Crity Company’s predecessor auditor was Tess, CPA, who has been
notified by Cristy Company that Tess’s services have been terminated. Under
these circumstances, which party should initiate the communications between
Babes and Tess?

a. Babes, the successor auditor

b. Tess, the predecessor auditor

c. Cristy’s controller or CEO.

d. The chairman of Cristy’s board of directors.

18. Before accepting an audit engagement, a successor auditor should make

specific inquiries of the predecessor auditor regarding the predecessor’s

a. Opinion of any subsequent events occurring since the

predecessor’s audit report was issued.

b. Understanding as to the reasons for the change of auditors.

c. Awareness of the consistency in the application of GAAP

between periods.

d. Evaluation of all matters of continuing accounting significance.

19. Which of the following factors most likely would cause a CPA not to accept
a new audit engagement?

a. The prospective client’s unwillingness to permit inquiry of its

legal counsel.

b. The inability to review the predecessor auditor’s working papers.

c. The CPA’s lack of understanding of the prospective client’s
operations and industry.

d. The indications that management has not investigated

employees in key position before hiring them.

20. The element of the audit planning process most likely to be agreed upon
with the client before implementation of the audit strategy is the
determination of the

a. Timing of inventory observation procedures to be performed.

b. Evidence to be gathered to provide a sufficient basis for the

auditor’s opinion.

c. Procedures to be undertaken to discover litigation, claims, and

assessments.

d. Pending legal matters to be included in the inquiry of the

client’s attorney

PSA 315

21. Which of the following factors would most likely cause a CPA to decide not
to accept a new audit engagement?

a. The CPA’s lack of understanding of the prospective client’s internal

auditor’s computer-assisted audit techniques.

b. Management’s disregard of its responsibility to maintain an adequate

internal control environment.
c. The CPA’s inability to determine whether related party transactions were
consummated on terms equivalent to arm’s-length transactions.

d. Management’s refusal to permit the CPA to perform substantive tests

before the year-end.

22. An auditor is required to establish an understanding with a client

regarding the services to be performed for each engagement. This
understanding generally includes

a. Management’s responsibility for errors and the illegal activities of

employees that may cause material misstatement.

b. The auditor’s responsibility for ensuring that the audit committee is

aware of any reportable conditions that come to the auditor’s attention.

c. Management’s responsibility for providing the auditor with an assessment

of the risk of material misstatement due to fraud.

d. The auditor’s responsibility for determining preliminary judgments about

materiality and audit risk factors.

23. Which of the following is most likely to require special planning

considerations related to asset valuation?

a. Inventory is comprised of diamond rings.

b. The client has recently purchased an expensive copy machine.

c. Assets costing less than $250 are expensed even when the expected life
exceeds one year.

d. Accelerated depreciation methods are used for amortizing the costs of

factory equipment.
24. Which of the following factors most likely would influence an auditor’s
determination of the auditability of an entity’s financial statements?

a. The complexity of the accounting system.

b. The existence of related-party transactions.

c. The adequacy of the accounting records.

d. The operating effectiveness of control procedures.

25. To obtain an understanding of a continuing client’s business in planning

an audit, an auditor most likely would

a. Perform tests of details of transactions and balances.

b. Review prior year working papers and the permanent file for the client.

c. Read specialized industry journals.

d. Reevaluate the client’s internal control environment.

PSA 320

26. Which of the following would an auditor most likely use in determining the
auditor’s preliminary judgment about materiality?

a. The anticipated sample size of the planned substantive tests.

b. The entity’s annualized interim financial statements.

c. The results of the internal control questionnaire.

d. The contents of the management representation letter.

27. Which of the following statements is not correct about materiality?

a. The concept of materiality recognizes that some matters are

important for fair presentation of financial statements in conformity with
GAAP, while other matters are not important.

b. An auditor considers materiality for planning purposes in terms

of the largest aggregate level of misstatements that could be material to any
one of the financial statements.

c. Materiality judgments are made in light of surrounding

circumstances and necessarily involve both quantitative and qualitative
judgments.

d. An auditor’s consideration of materiality is influenced by the

auditor’s perception of the needs of a reasonable person who will rely on the
financial statements.

28. Which of the following elements underlies the application of generally

accepted auditing standards, particularly the standards of fieldwork and
reporting?

a. Internal control.

b. Corroborating evidence.

c. Quality control.

d. Materiality and relative risk.

29. In considering materiality for planning purposes, an auditor believes that
misstatements aggregating P10,000 would have a material effect on an
entity’s income statement, but that misstatements would have to aggregate
P20,000 to materially affect the balance sheet. Ordinarily, it would be
appropriate to design auditing procedures that would be expected to detect
misstatements that aggregate

a. P10,000

b. P15,000

c. P20,000

d. P30,000

30. Which of the following would an auditor most likely use in determining the
auditor’s preliminary judgment about materiality?

a. The results of the initial assessment of control risk.

b. The anticipated sample size for planned substantive tests.

c. The entity’s financial statements of the prior year.

d. The assertions that are embodied in the financial statements.

PSA 240

31. Which of the following statement best describes an auditor’s responsibility

regarding misstatements?
a. An auditor should plan and perform an audit to provide
reasonable assurance of detecting misstatements that are material to the
financial statement.

b. An auditor is responsible to detect material errors but has no

responsibility to detect material fraud that is concealed through employee
collusion or management override of internal control.

c. An auditor has no responsibility to detect material

misstatements unless analytical procedures or tests of transactions identify
conditions causing a reasonably prudent auditor to suspect that the financial
statements were materially misstated.

d. An auditor has no responsibility to detect material

misstatements because an auditor is not an insurer and an audit does not
constitute a guarantee.

32. What is the responsibility of auditor regarding frauds and illegal acts?

a. The auditor is not responsible for detecting fraud.

b. The auditor should give reasonable assurance about whether

the financial statements are free of material misstatements, whether caused by
error or fraud.

c. The auditor is responsible for detecting fraud solely.

d. The detection of fraud is the primary responsibility of the

auditor.

33. Under PSA, which of the following would be classified as error?

a. Misappropriation of assets for the benefit of management.

b. Misinterpretation by management of facts that existed when
financial statements were prepared.

c. Preparation of records by employees to cover fraudulent

scheme.

d. Intentional omission of the recording of a transaction to benefit

a third party.

34. Certain management characteristics may heighten the auditor’s concern

the about the risk of material misstatements. The characteristics that is least
likely to cause concern is that management

a. Operating and financing decisions are made by numerous

individuals.

b. Commits to unduly aggressive forecasts.

c. Has an excessive interest in increasing the entity’s stock price

through of unduly aggressive accounting practices.

d. Is interested in inappropriate methods of minimizing earnings

for tax purposes.

35. Which of the following circumstances is most likely to cause an auditor to

suspect material misstatement of the client’s financial statement as a result of
fraud?

a. Property and equipment are usually sold at a loss before being

fully depreciated.

b. Unusual discrepancies between the entity’s records and

confirmation replies.
c. Monthly bank reconciliations usually include several in transit
items.

d. Clerical errors are listed on a computer-generated exception

report.

36. Which of the following is an example of fraudulent financial reporting?

a. Company management changes inventory count tags and

overstates ending inventory, while understating cost of goods sold.

b. The treasurer diverts customer payments to his personal due,

concealing his actions by debiting an expense account, thus overstating
expenses.

c. An employee steals inventory and the “shrinkage” is recorded in

cost of goods sold.

d. An employee steals small tools from the company and neglects

to return them; the cost is reported as a miscellaneous operating expense.

37. Which of the following best describes what is meant by the term “fraud
risk factor?”

a. Factors whose presence indicates that the risk of fraud is high.

b. Factors whose presence often have been observed in

circumstances where frauds have occurred.

c. Factors whose presence requires modification of planned audit

procedures.

d. Reportable conditions identified during an audit.

38. Which of the following is correct concerning requirements about auditor
communications about fraud?

a. Fraud that involves senior management should be reported

directly to the audit committee regardless of the amount involved.

b. Fraud with a material effect on the financial statements should

be reported directly by the auditor to the Securities and Exchange
Commission.

c. Fraud with a material effect on the financial statements should

ordinarily be disclosed by the auditor through use of an “emphasis of a
matter” paragraph added to the audit report.

d. The auditor has no responsibility to disclose fraud outside the

entity under any circumstances.

39. When performing a financial statement audit, auditors are required to

explicitly assess the risk of material misstatement due to

a. Errors.

b. Fraud.

c. Illegal acts.

d. Business risk.

40. Audits of financial statements are designed to obtain assurance of

detecting misstatement due to

Fraudulent Misappropriation

Errors financial reporting of assets

a. Yes Yes Yes

b. Yes Yes No

c. Yes No Yes

d. No Yes No

41. An auditor is unable to obtain absolute assurance that misstatements due

to fraud will be detected for all of the following except

a. Employee collusion.

b. Falsified documentation.

c. Need to apply professional judgment in evaluating fraud risk

factors.

d. Professional skepticism.

42. The most difficult type of misstatement to detect is fraud based on

a. The overrecording of transactions.

b. The nonrecording of transactions.

c. Recorded transactions in subsidiaries.

d. Related-party receivables.

43. In comparing management fraud with employee fraud, the auditor’s risk of
failing to discover the fraud is
a. Greater for employee fraud because of the higher crime rate among
blue collar workers.

b. Greater for management fraud because of management’s ability to

override existing internal controls.

c. Greater for employee fraud because of the larger number of employees

in the organization.

d. Greater for management fraud because managers are inherently

smarter than employees.

44. The nature, timing and extent of procedures may need to be modified in
the following ways as possible responses to the auditor’s assessment of the
risk of material misstatement resulting from both fraudulent financial
reporting and misappropriation of assets.

a. The nature of audit procedures performed may need to be changed to

obtain evidence that is more reliable or to obtain additional corroborative
information.

b. The timing of substantive procedures may need to be altered to be

closer to, or at, year-end.

c. The extent of the procedures applied will need to reflect the assessment
of the risk of material misstatement resulting from fraud.

d. All of the above.

45. Which of the following is least likely a category of fraud risk factors that
relate to misstatements resulting from fraudulent financial reporting?

a. Management’s characteristics and influence over the control

environment.
b. Industry conditions.

c. Operating characteristics and financial stability.

d. Susceptibility of assets to misappropriation.

PSA 250

46. Which of the following statements is correct concerning the auditor’s

responsibility with respect to illegal acts?

a. An auditor must design tests to obtain reasonable assurance of

detecting material direct-effect illegal acts.

b. An auditor must design tests to detect both immaterial and

material direct-effect illegal acts.

c. An auditor must design tests to detect both direct-effect and

indirect-effect illegal acts.

d. An auditor must design tests to detect both material direct-

effect and material indirect-effect illegal acts.

47. If an auditor believes a client may have committed illegal acts, which of the
following actions should the auditor take?

a. Consult with the client’s counsel and the auditor’s counsel to

determine how the suspected illegal acts will be communicated to
shareholders.

b. Extend auditing procedures to determine whether the

suspected illegal acts have a material effect on the financial statements.
c. Make inquiries of the client’s management and obtain an
understanding of the circumstances underlying the acts and of other evidence
to determine the effects of the acts on the financial statements.

d. Notify each member of the audit committee of the board of

directors about nature of the acts and request that they advise an approach to
be taken by the auditor.

48. An audit client’s board of directors and audit committee refused to take
action about an immaterial illegal act that was brought to their attention by
the auditor. Because of their failures to act, the auditor withdraws from the
engagement. The auditor’s decision to withdraw was primarily due to doubts
concerning

a. Inadequate financial statements disclosures.

b. Compliance with the Anti-money Laundering Act.

c. Scope limitations resulting from the inaction.

d. Reliance on management’s representations.

49. The auditor withdrawing from the audit engagement due to an illegal act
committed by client should

a. Notify all parties who may rely upon the company’s financial
statements of the company’s illegal act.

b. Consult with legal counsel as to what other action, if any, should

be taken.

c. Return all incriminating evidence and working papers to the

client’s audit committee for follow up.
d. Contact the successor auditor to make the successor aware of
the possible consequences of relying on management’s representations.

50. Because of the pervasive effects of laws and regulations on the financials
statements of governmental units, an auditor should obtain written
management representations acknowledging that management has

a. Implemented internal control policies and procedures designed

to detect all illegal acts,

b. Documented the procedures performed to evaluate the

governmental unit’s compliance with laws and regulations.

c. Identified and disclosed all laws and regulations that have a

direct and material effect on its financial statements.

d. Reported all known illegal acts and material weaknesses in

internal control structure to the funding agency or regulatory body.

51. Which of the following relatively small misstatements most likely could
have a material effect on an entity’s financial statements?

a. An illegal payment to a foreign official that was not recorded.

b. A piece of obsolete office equipment that was not retired.

c. A petty cash fund disbursement that was not properly

authorized.

d. An uncollectible account receivable that was not written off.

52. The most likely explanation why the auditor’s examination cannot
reasonably be expected to bring all illegal acts by the client to the auditor’s
attention is that

a. Illegal acts are perpetrated by management override of internal

control.

b. Illegal acts by clients often relate to operating aspects rather

than accounting aspects.

c. The client’s internal control may be so strong that the auditor

performs only minimal substantive testing.

d. Illegal acts may be perpetrated by the only person in the client’s

organization with access to both assets and the accounting records.

53. If specific information comes to an auditor’s attention that implies the

existence of possible illegal acts that could have a material, but indirect effect
on the financial statements, the auditor should next

a. Apply audit procedures specifically directed to ascertaining

whether an illegal act has occurred.

b. Seek the advice of an informed expert qualified to practice law

as to possible contingent liabilities.

c. Report the matter to an appropriate level of management at

least one level above those involved.

d. Discuss the evidence with the client’s audit committee, or others

with equivalent authority and responsibility.
54. An auditor who discovers that client employees have committed an illegal
act that has a material effect on the client’s financial statements most likely
would withdraw from the engagement if

a. The illegal act is a violation of generally accepted accounting

principles.

b. The client does not take the remedial action that the auditor
considers necessary.

c. The illegal act was committed during a prior year that was not
audited.

d. The auditor has already assessed control risk at the maximum

level.

55. The most likely explanation why the auditor’s examination cannot
reasonably be expected to bring all illegal acts by the client to the auditor’s
attention is that

a. Illegal acts are perpetrated by management override of internal

control.

b. Illegal acts by clients often relate to operating aspects rather

than accounting aspects.

c. The client’s internal control may be so strong that the auditor

performs only minimal substantive testing.

d. Illegal acts may be perpetrated by the only person in the client’s

organization with access to both assets and the accounting records.

PSA 610
56. When obtaining an understanding and performing a preliminary
assessment of the internal audit function, the auditor should consider the
internal auditors’

Organizational Status Scope of

Functions Technical competence and due care

a. Yes Yes
Yes

b. Yes No
Yes

c. Yes No
No

d. No Yes
No

57. An independent auditor might consider the procedures performed by the

internal auditors because

a. They are employees whose work must be reviewed during substantive

testing.

b. Their work affects the cost benefit trade off

c. They are employees whose work may affect the nature, timing, and
extent of audit procedures.

d. Their degree of independence may be inferred from the nature of their

work.
58. The assess the objectivity of the internal auditors, an independent auditor
would most likely

a. Consider the professional qualifications and experience of the

internal auditors.

b. Consider the organizational level to which the internal auditors

report the results of their work.

c. Consider proper planning, supervision, and documentation of

internal auditor’s work.

d. Consider the nature and extent of the internal auditors’

assignment.

59. If the independent auditors decide that the work performed by the internal
auditor may have a bearing on their own procedures, they should consider the
internal auditor’s

a. Competence and objectivity.

b. Efficiency and experience.

c. Independence and review skills.

d. Training and supervisory skills.

60. In assessing the objectivity of internal auditors, an independent auditor

should

a. Evaluate the quality control program in effect for the internal

auditors.
b. Examine documentary evidence of the work performed by the
internal auditors.

c. Test a sample of the transactions and balances that the internal

auditors examined.

d. Determine the organizational level to which the internal

auditors report.

PSA 620

61. An expert may be:

A B C D

Engaged by the entity Yes No Yes Yes

Engaged by the auditor No Yes Yes Yes

Employed by the entity Yes No No Yes

Employed by the auditor No Yes No Yes

62. Which of the following least likely requires the services of an expert?

a. Valuations of certain types of assets like land and buildings.

b. Legal opinions concerning interpretations of engagements, statutes

and regulations.

c. Determination of amounts using specialized techniques.

d. Application of accounting methods in computing inventory balances.

63. In using the work of a specialist, an auditor may refer to the specialist in
the auditor’s report if, as a result of the expert’s findings, the auditor

a. Becomes aware of conditions causing substantial doubt about

the entity’s ability to continue as a going concern.

b. Desires to disclose the specialist’s findings, which imply that a

more thorough audit was performed.

c. Is able to corroborate another specialist’s earlier findings that

were consistent with management’s representations.

d. Discovers significant deficiencies in the design of the entity’s

internal control that management does not correct.

64. Which of the following statements is correct about the auditor’s use of the
work of a expert?

a. The specialist should not have an understanding of the auditor’s

corroborative use of the specialist’s findings.

b. The auditor is required to perform substantive procedures to

verify the specialist’s assumptions and findings.

c. The client should not have an understanding of the nature of

the work to be performed by the specialist.

d. The auditor should obtain an understanding of the methods

and assumptions used by the specialist.

65. In using the work of a expert, an auditor referred to the specialist’s

findings in the auditor’s report. This would be an appropriate reporting
practice if the

a. Client is not familiar with the professional certification, personal

reputation, or particular competence of the specialist.
b. Auditor, as a result of the specialist’s findings, adds an
explanatory paragraph emphasizing a matter regarding the financial
statements.

c. Client understands the auditor’s corroborative use of the

specialist’s findings in relation to the representations in the financial
statements.

d. Auditor, as a result of the specialist’s findings, decides to

indicate a division of responsibility with the specialist.

PSA 330

66. In obtaining an understanding of an entity’s internal control, an auditor is

required to obtain knowledge about the

Operating effectiveness Design

of controls of controls

a. Yes Yes

b. No Yes

c. Yes No

d. No No

67. Control risk should be assessed in terms of

a. Specific controls.

b. Types of potential fraud.

c. Financial statement assertions.

d. Control environment factors.

68. After assessing control risk at below the maximum level, an auditor
desires to seek a further reduction in the assessed level of control risk. At this
time, the auditor would consider whether

a. It would be efficient to obtain an understanding of the entity’s

information system.

b. The entity’s controls have been placed in operation.

c. The entity’s controls pertain to any financial statement

assertions.

d. Additional evidential matter sufficient to support a further

reduction is likely to be available.

69. Assessing control risk at below the maximum level most likely would
involve

a. Performing more extensive substantive tests with larger sample

sizes than originally planned.

b. Reducing inherent risk for most of the assertions relevant to

significant account balances.

c. Changing the timing of substantive tests by omitting interim-

date testing and performing the tests at year-end.

d. Identifying specific controls relevant to specific assertions.

70. An auditor assesses control risk because it

a. Is relevant to the auditor’s understanding of the control

environment.

b. Provides assurance that the auditor’s materiality levels are

appropriate.

c. Indicates to the auditor where inherent risk may be the greatest.

d. Affects the level of detection risk that the auditor may accept.

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

a. Extent of tests of controls.

b. Level of detection risk.

c. Extent of tests of details.

d. Level of inherent risk.

72. When assessing control risk below the maximum level, an auditor is
required to document the auditor’s

Basis for

Understanding of concluding that

the entity’s control control risk is below

environment maximum level

a. Yes No

b. No Yes

c. Yes Yes

d. No No

73. An auditor uses the knowledge provided by the understanding of internal

control and the assessed level of control risk primarily to

a. Determine whether procedures and records concerning the

safeguarding of assets are reliable.

b. Ascertain whether the opportunities to allow any person to both

perpetrate and conceal fraud are minimized.

c. Modify the initial assessments of inherent risk and preliminary

judgments about materiality levels.

d. Determine the nature, timing, and extent of substantive tests for

financial statement assertions.

74. An auditor may compensate for a weakness in internal control by

increasing the

a. Level of detection risk.

b. Extent of tests of controls.

c. Preliminary judgment about audit risk.

d. Extent of analytical procedures.

75. Which of the following statements is correct concerning an auditor’s
assessment of control risk?

a. Assessing control risk may be performed concurrently during an

audit with obtaining an understanding of the entity’s internal control.

b. Evidence about the operation of internal control in prior audits

may not be considered during the current year’s assessment of control risk.

c. The basis for an auditor’s conclusions about the assessed level

of control risk need not be documented unless control risk is assessed at the
maximum level.

d. The lower the assessed level of control risk, the less assurance
the evidence must provide that the control procedures are operating
effectively.