Audit & Risk Management Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Audit & Risk Management flashcards as text
Which type of audit risk arises from the possibility that internal controls fail to prevent or detect material misstatements?
Answer: Control risk
Control risk is the risk that a client's internal controls fail to prevent or detect material misstatements on a timely basis.
An auditor issues a qualified opinion when:
Answer: A material but non-pervasive misstatement or scope limitation exists
A qualified opinion ('except for') is issued when misstatements or scope limitations are material but not pervasive enough to warrant an adverse or disclaimer opinion.
Enterprise Risk Management (ERM) under the COSO framework includes which of the following components?
Answer: Governance & culture, strategy & objective-setting, performance, review & revision, and information & communication
The 2017 COSO ERM framework organizes risk management into five interrelated components: governance & culture, strategy & objective-setting, performance, review & revision, and information, communication & reporting.
When an auditor uses stratified sampling, the primary purpose is to:
Answer: Divide the population into subgroups to improve audit efficiency and focus on higher-risk items
Stratified sampling divides the population into homogeneous subgroups so the auditor can apply more scrutiny to higher-value or higher-risk strata.
Which procedure is classified as a substantive analytical procedure rather than a test of details?
Answer: Comparing the current year's gross margin percentage to prior years and industry averages
Substantive analytical procedures involve evaluating financial information through plausible relationships among data, such as trend and ratio analysis, rather than examining individual transactions.
The concept of 'materiality' in auditing is BEST described as:
Answer: The threshold above which misstatements could influence the economic decisions of financial statement users
Materiality is the magnitude of an omission or misstatement that, individually or in aggregate, could reasonably influence the economic decisions of users relying on the financial statements.
A key indicator of a significant deficiency in internal controls (as opposed to a material weakness) is:
Answer: A control deficiency that is less severe than a material weakness yet important enough to merit attention by those charged with governance
A significant deficiency is a control deficiency, or combination of deficiencies, that is less severe than a material weakness but still warrants the attention of those charged with governance.