Question

1. An unexpected economic downturn is likely to have which effect on inventory turnover

• Increase
• No effect
• Decrease
• Each of these replies is equally likely

2. A client representation letter can be used as a substitute for performing some audit procedures since the information is provided by the client in writing.

a. True

b. False

3. All of the following are considered in developing an expectation of an account balance except:

a. Anticipated results, such as budgets and forecasts

b. Relationships between financial information and relevant nonfinancial data

c. Subsequent cash receipts

d. Financial information for comparable prior periods

       4. The most efficient set of audit procedures is that which achieves the required low level of audit risk at the minimum cost.

                           a. True

                           b. False

         5. Operating results that are highly sensitive to economic factors is considered to an inherent risk.

                           a. True

                           b. False

         6. Scanning through the accounting records to look for unusual or large items is not generally considered to be a valid substantive procedure in an audit.

                           a. True

                           b. False

        7. The detection risk in the audit varies directly in accordance with the risk of material misstatement.

                           a. True

                           b. False

      8. Which of the following approaches to an audit is most likely to result in a detailed analysis of one or more characteristics of an entire population?

                           a. A horizontal analysis approach

                           b. a test design approach

                           c. a ratio analysis approach

                           d. a data analytical approach

    9. Assertions with high inherent risk are least likely to involve:

                           a. difficult accounting issues

                           b. Significant judgement by management

                           c. Complex calculations

                           d. Routine transactions

Answer 1

1) Solution: Decrease

Explanation: An unexpected economic downturn is likely to reduce inventory turnover

2) Solution: False

Explanation: This will violate the professional standards

3) Solution: Subsequent cash receipts

Explanation: The sources of information for developing expectations does not considers subsequent cash receipts

4) Solution: True

Explanation: Sufficient audit evidence is appropriate obtained when audit risk is decreased to an acceptable level. The efficient set of audit procedures in most appropriate manner is achieved when the required low level of audit risk at the minimum cost