AAA Planning, risk and evidence

Overall materiality is set at 1 percent of revenue of $50m. Performance materiality is set at 75 percent of that. Performance materiality is:

• 1 $50,000
• 2 $375,000
• 3 $750,000
• 4 $500,000

Audit risk is the risk that the auditor gives an inappropriate opinion. Which model is used for it?

• 1 Inherent risk x control risk x detection risk
• 2 Revenue x cost x profit
• 3 Sample size x error
• 4 Cost x benefit

If audit risk is to be 5 percent, inherent risk is assessed at 100 percent and control risk at 50 percent, the acceptable detection risk is:

• 1 50%
• 2 5%
• 3 10%
• 4 25%

A significant risk requires:

• 1 No audit work
• 2 Special audit consideration, including substantive procedures that respond specifically to it
• 3 The same work as other risks
• 4 A reduced sample

When using the work of an internal auditor, the external auditor should:

• 1 Rely on it without review
• 2 Pass responsibility to the internal auditor
• 3 Evaluate their competence, objectivity and the quality of the work, and keep responsibility for the opinion
• 4 Avoid it in all cases

In a group audit, component materiality is set:

• 1 Equal to group materiality for every component
• 2 Lower than group materiality, so that aggregation does not exceed what is acceptable
• 3 Higher than group materiality
• 4 At zero

Which of the following gives the most reliable audit evidence?

• 1 A document created by the client
• 2 An oral explanation by management
• 3 A photocopy
• 4 A document obtained directly from an independent third party