Transaction Testing

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Which risk can be increased or decreased by the auditor?

Control Risk

Audit Risk

Inherent Risk

Detection Risk (correct)

Which risk can only be controlled by the auditor?

Audit Risk

Inherent Risk

Detection Risk

Control Risk (correct)

What is the equation for Detection Risk?

DR = IR / (AR x CR)

DR = AR / (CR x IR)

DR = CR / (AR x IR)

DR = AR / (IR x CR) (correct)

What are the ways to decrease Detection Risk?

All of the above Signup and view all the answers

What are the ways to increase Detection Risk?

None of the above Signup and view all the answers

When is the 'audit around the computer' approach used?

When there are visible input documents and detailed output Signup and view all the answers

What are some commonly used Computer-Assisted Audit Techniques (CAATs)?

Both A and B Signup and view all the answers

Which of the following factors affects the timing of substantive testing (ST)?

The risk of material misstatement Signup and view all the answers

What do tests of controls (TOC) provide evidence about?

The effectiveness of internal controls (IC) Signup and view all the answers

What is the relationship between substantive testing (ST) and tests of controls (TOC)?

ST provides evidence about the existence of MM Signup and view all the answers

What is the purpose of general controls in a computer information system (CIS) environment?

To protect equipment, files, and programs Signup and view all the answers

What are application controls in a CIS environment?

Controls designed to ensure the completeness and accuracy of data processing Signup and view all the answers

What is the purpose of control totals in application controls?

To ensure the completeness of data through total computation Signup and view all the answers

What should an auditor consider in terms of CIS skills and competence?

All of the above Signup and view all the answers

Which of the following is a key factor in planning an audit and developing an effective audit approach?

Obtaining understanding of the significance and complexity of the CIS activities Signup and view all the answers

When the CIS is significant, what should auditors also obtain an understanding of?

The significance and complexity of the CIS activities Signup and view all the answers

What is the potential use of Clients CIS in an audit?

To increase efficiency in the performance of the audit procedures Signup and view all the answers

What is the significance of obtaining understanding of the organizational structure of the client's CIS activities?

To assess the inherent and control risks Signup and view all the answers

What is the role of the availability of data source in the audit?

To plan the audit and develop an effective audit approach Signup and view all the answers

What is the potential of Clients CIS in increasing efficiency in audit procedures?

To use as computer-assisted audit techniques (CAAT) Signup and view all the answers

When should auditors obtain an understanding of the CIS environment?

When the CIS is significant Signup and view all the answers

What is the importance of understanding the significance and complexity of the CIS activities?

To plan the audit and develop an effective audit approach Signup and view all the answers

What is the role of the availability of data for use in the audit?

To understand the organizational structure of the client's CIS activities Signup and view all the answers

Which type of audit risk refers to the risk that a material misstatement could occur in a financial statement assertion and not be prevented or detected by the client's internal controls?

Control Risk Signup and view all the answers

What is the formula for Desired Audit Risk (DAR)?

DAR = Inherent Risk (IR) x Control Risk (CR) x Detection Risk (DR) Signup and view all the answers

What is the definition of Inherent Risk?

The susceptibility of a financial statement assertion to a material misstatement, assuming there are no related internal controls Signup and view all the answers

What is the definition of Control Risk?

The risk that a material misstatement could occur in a financial statement assertion and not be prevented or detected by the client's internal controls Signup and view all the answers

What is the definition of Detection Risk?

The risk that the auditor procedures will not detect a material misstatement that exists in a financial statement assertion Signup and view all the answers

What is the formula for Audit Risk?

Audit Risk = Inherent Risk (IR) x Control Risk (CR) x Detection Risk (DR) Signup and view all the answers

What is the relationship between the desired level of audit risk and the design of substantive procedures?

As the desired level of audit risk decreases, the auditor should design more effective substantive procedures Signup and view all the answers