FAC Finance and Accounting Auditing & Risk Review 2

Question 1

Which type of audit opinion is issued when financial statements contain a material misstatement that is pervasive to the overall financial statements?

Accepted Answer

Adverse opinion

Answer

An adverse opinion is issued when material misstatements are both material and pervasive, meaning the financial statements do not present fairly in conformity with GAAP.

Question 2

In enterprise risk management (ERM), the COSO framework identifies how many interrelated components?

Accepted Answer

8

Answer

The original COSO ERM framework identifies eight interrelated components: internal environment, objective setting, event identification, risk assessment, risk response, control activities, information & communication, and monitoring.

Question 3

A company's board audit committee is reviewing a situation where the external auditor also provides tax consulting services. This creates which type of threat to auditor independence?

Accepted Answer

Self-interest threat

Answer

Providing additional paid services creates a self-interest threat because the auditor may benefit financially from retaining the client relationship.

Question 4

When assessing inherent risk during an audit, which factor would MOST increase the assessed level?

Accepted Answer

Complex transactions involving significant estimates

Answer

Complex transactions requiring significant management estimates increase inherent risk because they are more susceptible to material misstatement before considering controls.

Question 5

Under the Sarbanes-Oxley Act (SOX) Section 404, management must assess the effectiveness of internal control over financial reporting (ICFR) as of which date?

Accepted Answer

The end of the most recent fiscal year

Answer

SOX Section 404 requires management's assessment of ICFR effectiveness to be as of the end of the company's most recent fiscal year.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Finance and Accounting Auditing & Risk Review 2