Audit planning in difficult times

Which of the following is the best definition of business risk?

Risks that could affect the company`s ability to achieve its objectives

Risks that will reduce the company`s profits

Risks that will cause going concern problems

Risks that could reduce the company`s profits

Which is the correct order for these steps in the audit? (i) Identify the business risks facing the client; (ii) Gain an understanding of the company`s business and the environment in which it operates; (iii) Design suitable responses to the risks of material misstatement; (iv) Assess the risks of material misstatement

(iv), (i), (ii), (iii)

(i), (ii), (iv), (iii)

(ii), (i), (iv), (iii)

(i), (ii), (iii), (iv)

Which of the following best explains the relationship between business risk and the risk of material misstatement?

Business risks may increase the risk of material misstatement if they could lead to going concern problems or affect numbers in the financial statements

Business risks increase the risk of material misstatement because they will lead to going concern problems or affect numbers in the financial statements

They are totally unrelated

Business risks and the risk of material misstatement are the same

Which of the following statements are true? (i) Business risks lead to going concern problems; (ii) Business risks increase audit risk; (iii) Business risks are the auditor’s responsibility to manage; (iv) Business risks are only a problem during the credit crisis

(i) and (ii) only

All four of the above

None of these

(i) only

Which of the following is the best description of the relationship between business risk and audit risk?

Business risks and audit risks are not related

Business risks could increase the risk of material misstatement which will require increased detection risk to maintain the level of audit risk

Business risks could increase the risk of material misstatement which will increase audit risk

Business risks could increase the risk of material misstatement which will require reduced detection risk to maintain the level of audit risk

Which of the following could lead to going concern problems? (i) Difficulties in complying with the terms of loan agreements; (ii) Property, which the company does not intend to sell, has decreased in value; (iii) Customers taking longer to pay; (iv) Lower availability of trade credit

(ii), (iii) and (iv)

All of the these

(i), (iii), and (iv)

(i), (ii) and (iii)

Which of the following could lead to going concern problems for a small biscuit maker in the UK? (i) Expansion overseas to meet increased demand; (ii) The company`s packaging supplier goes out of business; (iii) An increase in the cost of flour; (iv) A retailer to whom the company supplies goes out of business

(ii) and (iv)

All of these

(iii) and (iv)

(ii), (iii) and (iv)

Which of the following statements are false? (i) Profitable companies never go out of business; (ii) Loss making companies always go out of business; (iii) Companies only go out of business when interest rates are high; (iv) Lack of cash is a cause of going concern problems

(ii) and (iii)

(ii), (iii) and (iv)

(i), (ii) and (iii)

All of these

Which of the following are business risks? (i) Recession; (ii) Inadequate sample sizes in audit work; (iii) Computer systems failure; (iv) A key member of staff leaving

All of these

(i) and (iv)

(i), (ii) and (iv)

(i), (iii) and (iv)

Which of the following is not a business risk?

Properties falling in value

A bank refusing to extend an overdraft facility

The sudden death of the CEO

The auditor performing inappropriate work

Audit planning in difficult times

Which of the following is the best definition of business risk?

Which of the following best explains the relationship between business risk and the risk of material misstatement?

Which of the following statements are true? (i) Business risks lead to going concern problems; (ii) Business risks increase audit risk; (iii) Business risks are the auditor’s responsibility to manage; (iv) Business risks are only a problem during the credit crisis

Which of the following is the best description of the relationship between business risk and audit risk?

Which of the following could lead to going concern problems? (i) Difficulties in complying with the terms of loan agreements; (ii) Property, which the company does not intend to sell, has decreased in value; (iii) Customers taking longer to pay; (iv) Lower availability of trade credit

Which of the following statements are false? (i) Profitable companies never go out of business; (ii) Loss making companies always go out of business; (iii) Companies only go out of business when interest rates are high; (iv) Lack of cash is a cause of going concern problems

Which of the following are business risks? (i) Recession; (ii) Inadequate sample sizes in audit work; (iii) Computer systems failure; (iv) A key member of staff leaving

Which of the following is not a business risk?

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