Certified Public Accountant Risk Assessment & Management 3

Question 1

During an audit, an auditor determines that inherent risk and control risk are both high. The auditor should:

Accepted Answer

Set detection risk at a low level by expanding substantive testing

Answer

When inherent and control risk are high, auditors must set detection risk low, which requires more extensive substantive audit procedures.

Question 2

Which of the following is an example of a key risk indicator (KRI)?

Accepted Answer

Number of failed system login attempts per day

Answer

Failed login attempts is a KRI because it signals potential cybersecurity threats before they materialize into actual incidents.

Question 3

A company outsources its payroll processing to a third-party vendor. Which risk does the company primarily take on?

Accepted Answer

Vendor/third-party risk

Answer

Outsourcing critical functions like payroll creates vendor or third-party risk, where the company depends on an external party's performance and controls.

Question 4

The risk that a counterparty will fail to fulfill its contractual obligations is called:

Accepted Answer

Credit risk

Answer

Credit risk is the possibility that a counterparty will default on its obligations, resulting in financial loss to the other party.

Question 5

Which internal control activity is most effective at preventing fraudulent journal entries from being recorded?

Accepted Answer

Segregation of duties between journal entry preparation and approval

Answer

Segregation of duties ensures that the person who prepares a journal entry cannot also approve it, reducing the risk of unauthorized or fraudulent entries.

Certified Public Accountant Practice Test

Certified Public Accountant Practice Test

Certified Public Accountant Risk Assessment & Management 3