In class, we discusdrnside tests of gain audit efficienc discussed the not accou
ID: 2600851 • Letter: I
Question
In class, we discusdrnside tests of gain audit efficienc discussed the not accounts for overstasider the internen tho-inaccotu' Rstatement, then conceptual or UN I. When of an a the following C.1t te ent tevesoncepcount is tested directly · is true; 11 is false. inventory purchases accol 4, 25 Erueeste , thenuendireceptually, accounts payable d. I is false II is false. abie b. ? ng tested also indirectly s true: II is true Lis tde thede acectiy paya Answer Assume that the achieved audit risk is 03 detection risk would round to: 6 and the control risk is .30. The ca of e. noneof the above. The answer is- 7. Consider the following statements: A basic sense of materiality would be material if it would affect d II. When considering prelimina a preliminary judgment of materialit a decision maker' s decision. materiality, rather than a HI sts a LOWER dollar amount for something is r is true; II is true. I is true: II is false. T is false: II is true. I is false: II is false tantive testing is required HIGHER dollar amount, MORE y, 8. Management asserts that based on Generally Acce What management assertio a. Completeness b. Existence c. Rig d. Valuation and All ang lly.Artionis involved? the receivabl ted Accounting Princ accounts hts and obligations balance isExplanation / Answer
5.
I. If inventory purchases account will be overstated, then Accounts payable will also be overstated. Hence this statement is false.
II. If sales revenue has been recognised at low level or understated, then conceptually accounts receivable will also be understated. Hence, this statement is true.
(c) I is false, II is true.
6.
Audit risk = Inherent risk * Control Risk * Detection Risk
.05 = .6 * .3 * DR
DR = .05 / (.60 * .30)
DR = .027777 or .0278 (approx)
(f) None of the above. Answer is 0.0278.
7.
I. Something would be considered as material if it has a capability to affect the decision of the auditor. Hence this statement is true.
II. If auditor sets lower dollar of materiality, all the items exceeding that level will have to be checked. Hence, More evidence will be required. This statement is true.
(a) I is true and II is true.
8.
If management assets that Accounts receivable balance is based on GAAP. Valuation and allocation as a principal assertion is involved in it.
(d) Valuation and assertion
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