Audit Risk Model MCQs 2026

Which statement about Risk at assertion level is correct

1. A risk attached to specific class of transactions or balance ✓
2. B only entity level always ✓
3. C only audit firm level ✓
4. D only industry level without assertion ✓

Fraud risk factor incentives is best described as

1. A only external audit fees ✓
2. B only office rent ✓
3. C only employee birthdays ✓
4. D financial pressure opportunity and rationalization ✓

Regarding Control risk assessment in Audit Risk Model, the accurate view is

1. A always maximum without testing ✓
2. B always zero without walkthrough ✓
3. C based on design and operating effectiveness testing ✓
4. D ignore control environment ✓

Setting detection risk in the context of Audit Risk Model refers to

1. A inversely related to assessed RMM for given audit risk ✓
2. B same regardless of RMM ✓
3. C higher when RMM is high ✓
4. D zero always achievable ✓

Which statement about Direction of testing is correct

1. A risk assessment determines where to allocate audit effort ✓
2. B equal time on all accounts always ✓
3. C ignore high risk revenue area ✓
4. D only test cash regardless of risk ✓

A key aspect of Acceptable audit risk is that it involves

1. A always zero ✓
2. B auditor judgment of tolerable audit risk for engagement ✓
3. C always 100 percent ✓
4. D set by client exclusively ✓

Audit risk model in the context of Audit Risk Model refers to

1. A AR equals IR times CR times DR ✓
2. B AR equals only inherent risk ✓
3. C DR equals IR times CR ✓
4. D CR equals AR divided by DR only ✓

Which statement about Audit risk is correct

1. A risk that auditor expresses inappropriate opinion when FS materially misstated ✓
2. B risk client fails business only ✓
3. C risk of staff turnover only ✓
4. D risk of late report filing only ✓

Business risk is best described as

1. A identical to detection risk ✓
2. B only audit firm risk ✓
3. C only tax penalty risk ✓
4. D risk entity fails to meet objectives; may affect financial reporting ✓

A key aspect of Significant risk response is that it involves

1. A reduce work on significant risks ✓
2. B only inquiry for revenue recognition fraud risk ✓
3. C more experienced staff enhanced supervision and unpredictable procedures ✓
4. D ignore management override ✓

Regarding Risk at financial statement level in Audit Risk Model, the accurate view is

1. A risk affecting FS as whole not limited to single assertion ✓
2. B only invoice level always ✓
3. C only petty cash always ✓
4. D never related to going concern ✓

Which statement about Reassessment of risk is correct

1. A fixed at planning never changed ✓
2. B updating risk assessment as audit progresses with new information ✓
3. C only after report issued ✓
4. D ignore new fraud indicators ✓

In Audit Risk Model, Combined risk assessment primarily means

1. A only ratio analysis without inquiry ✓
2. B considering both qualitative and quantitative factors ✓
3. C only inquiry without analytics ✓
4. D ignore industry knowledge ✓

In Audit Risk Model, Inherent risk primarily means

1. A risk after control reliance only ✓
2. B only detection failure ✓
3. C only sampling error ✓
4. D susceptibility of assertion to misstatement before considering controls ✓

A key aspect of Control risk is that it involves

1. A risk that misstatement will not be prevented or detected by internal control ✓
2. B always zero if auditor exists ✓
3. C same as audit risk always ✓
4. D only fraud risk component ✓

Regarding Risk of material misstatement in Audit Risk Model, the accurate view is

1. A equals detection risk ✓
2. B equals audit risk only ✓
3. C excludes inherent risk ✓
4. D combination of inherent and control risk at assertion level ✓

Assessing inherent risk factors in the context of Audit Risk Model refers to

1. A complexity judgment transactions and fraud susceptibility ✓
2. B only counting paper reams ✓
3. C only office location ✓
4. D only logo colour ✓

Regarding Management override of controls in Audit Risk Model, the accurate view is

1. A immaterial always ✓
2. B prevented by any IT system always ✓
3. C significant fraud risk due to ability to bypass controls ✓
4. D not relevant to audit ✓

Audit Risk Model: Audit risk and materiality link can be defined as

1. A materiality unrelated to risk ✓
2. B higher materiality means more work always ✓
3. C same sample regardless of materiality ✓
4. D lower materiality implies lower acceptable audit risk for planning ✓

Regarding Detection risk in Audit Risk Model, the accurate view is

1. A risk auditor procedures will not detect misstatement that exists ✓
2. B risk management commits fraud only ✓
3. C risk of client bankruptcy only ✓
4. D risk of industry decline only ✓