In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to be a misstatement that - answerB. Arises from a flaw in the accounting system. Inherent risk and control risk differ from detection risk in which of the following ways? - answerB. Inherent risk and control risk exist independently of the audit. Based on past experience with a client, an auditor determined performance materiality for fixed assets should be calculated at 1/4 of total materiality (5% of total gross fixed assets). Calculate performance materiality based on the following: Fixed assets (gross) at 1/1/2017 $1,000,000 Capital expenditures 250,000 Dispositions 200,000 Accumulated depreciation at 1/1/2017 400,000 Accumulated depreciation at 12/31/2017 370,000 - answer13125 Each of the following is a type of known misstatement, except - answerD. Differences between management and the auditor's judgment regarding estimates. Upon discovering fraudulent data in a client's tax return that the client would not correct, a CPA withdraws from the engagement. How should the CPA respond if asked by the successor CPA why the relationship was terminated? - answerD. "I suggest you get the client's permission for us to discuss all matters freely." In an audit of financial statements, an auditor's primary consideration regarding an internal control is whether the control - answerA. Affects management's financial statement assertions. Which of the following matters generally is included in an auditor's engagement letter? - answerC. Management's responsibility for the entity's compliance with laws and regulations. Which of the following factors would most likely influence the form and extent of the auditor's documentation of an entity's internal control environment? - answerc. complexity and size of the entity The audit plan usually cannot be finalized until the - answerD. Understanding of the entity and its environment has been completed. When an auditor increases the assessed risks of material misstatement because certain control activities were determined to be ineffective, the auditor most likely would increase the - answerB. Extent of tests of details. Which of the following is an auditor least likely to perform in planning a financial statement audit? - answerA. Selecting a sample of vendors' invoices for comparison with receiving reports. Because of the risk of material misstatement due to fraud, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of - answerb. professional skepticism Three conditions are generally present in the client's organization when fraud occurs. Those conditions include each of the following except a(n) - answerC. Professional skepticism about the likelihood of fraud. In developing an audit plan, an auditor should - answerC. perform risk assessment procedures Which of the following is a step in an auditor's decision to rely on internal controls? - answerC. Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls. An auditor assesses the risks of material misstatement because they - answerC. Affect the level of detection risk that the auditor may accept. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality for the financial statements as a whole? - answerC. The entity's year-to-date financial results and position. After testing a client's internal control activities, an auditor discovers a number of significant deficiencies in the operation of a client's internal controls. Under these circumstances, the auditor most likely would - answerC. Increase the assessment of control risk and increase the extent of substantive test