Question 1

Which of the following is likely to be found in the minutes of the board of directors?

Accepted Answer

A) Approval of customer credit limits. 
B) Approval of a new computer for the controller. 
C) Authorization of employee salaries. 
D) Authorization of executive salaries. 
A) Approval of customer credit limits. 
B) Approval of a new computer for the controller. 
C) Authorization of employee salaries. 
D) Authorization of executive salaries. D

Question 2

If an auditor were to use 5% of income before taxes as a basis for materiality, it would be an example of judgment based on

Accepted Answer

A) Absolute size. 
B) Relative size. 
C) Nature of the item. 
D) Cumulative effects. 
A) Absolute size. 
B) Relative size. 
C) Nature of the item. 
D) Cumulative effects. B

Question 3

Analytical procedures consist of evaluating financial information by studying financial
and non -financial data and looking for plausible or implausible relationships.The procedures can range from making simple comparisons to using complex models involving many relationships and elements of data.They can involve time-series comparisons of recorded amounts, ratios developed from recorded amounts and they always include comparison to expectations developed by the auditors.
Required:
A) Describe the broad purposes of analytical procedures.
B) Identify the sources of information from which an auditor develops expectations.

Accepted Answer

A) Analytical procedures are used for these broad purposes.
i.To assist the auditor in planning the nature, timing, and extent of other auditing procedures.ii.As a substantive test to obtain evidence about particular assertions related to account balances or classes of transactions.
iii.As an overall review of the financial information in the final review stage of the audit.B) An auditor's expectations are developed from the following sources of information.
i.Financial information for comparable prior periods giving consideration to known changes.ii.Anticipated results - for example, budgets, forecasts, and extrapolations.
iii.Relationships among elements of financial information within the period.iv.Information regarding the industry in which the client operates.
v.Relationships of financial information with relevant non-financial information.

Question 4

The detailed audit plan guides development of the overall audit strategy.

Accepted Answer

A) True 
 B)False

Question 5

Generally accepted auditing standards require that analytical procedures:

Accepted Answer

A) Should be applied in the planning and final review stages of the audit and as a substantive test during the audit. 
B) Should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit. 
C) Should be applied in the planning stage and can be applied as a substantive test and in the final review stage. 
D) Should be applied in the final review stage, and can be applied as a substantive test in the planning stage. 
A) Should be applied in the planning and final review stages of the audit and as a substantive test during the audit. 
B) Should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit. 
C) Should be applied in the planning stage and can be applied as a substantive test and in the final review stage. 
D) Should be applied in the final review stage, and can be applied as a substantive test in the planning stage.

Question 6

A completeness error occurs when an account balance is overstated.

Accepted Answer

A) True 
 B)False

Question 7

This question tests your ability to perceive the place(s) where potential problems may exist and the type of problem (overstatement or understatement) that may exist.
Required:
For each of the items below, identify the account(s) that need(s) to be audited carefully and the reason; for example, "potential overstatement or understatement of ."
A) Current year accounts receivable is larger than last year but the allowance for doubtful accounts is the same.
B) Current year inventory is larger than last year but the current year gross margin (profit) is larger.
C) Current year long-term liabilities are larger than last year but the interest expense is the same.
D) Current year fixed assets total is larger than last year but current amortization expense is the same as last year.

Accepted Answer

A) The collectability of accounts receiv

Question 8

Give some examples of cut off errors and explain what management assertions are affected by such errors.

Accepted Answer

An example of a cut off error would be i

Question 9

During the preliminary analytical review, the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold.The auditors should consider performing a careful lower-of-cost-or-market valuation of the year-end inventory.

Accepted Answer

A) True 
 B)False

Question 10

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

Accepted Answer

A) True 
 B)False

Question 11

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the auditor's expectations.If management is unable to provide an acceptable explanation, the auditor should

Accepted Answer

A) Consider the matter a scope limitation. 
B) Perform additional audit procedures to investigate the matter further. 
C) Intensify the audit with the expectation of detecting management fraud. 
D) Withdraw from the engagement. 
A) Consider the matter a scope limitation. 
B) Perform additional audit procedures to investigate the matter further. 
C) Intensify the audit with the expectation of detecting management fraud. 
D) Withdraw from the engagement.

Question 12

The overall audit strategy typically includes:

Accepted Answer

A) The detailed audit plan. 
B) Specific procedures for determining inherent and control risk. 
C) Decisions about unusual client accounting principles. 
D) Audit evidence gathering procedures. 
A) The detailed audit plan. 
B) Specific procedures for determining inherent and control risk. 
C) Decisions about unusual client accounting principles. 
D) Audit evidence gathering procedures.

Question 13

In a typical audit, testing of internal controls occurs:

Accepted Answer

A) In the planning stage of the audit. 
B) During the interim audit work. 
C) During the yearend audit work. 
D) As a separate engagement. 
A) In the planning stage of the audit. 
B) During the interim audit work. 
C) During the yearend audit work. 
D) As a separate engagement.

Question 14

In the planning stage, analytical procedures are used to

Accepted Answer

A) Assess overall reasonableness of the financial statements. 
B) Identify potential problem areas. 
C) Determine the mathematical correctness of the financial statements. 
D) Provide direct evidence about the balances in accounts. 
A) Assess overall reasonableness of the financial statements. 
B) Identify potential problem areas. 
C) Determine the mathematical correctness of the financial statements. 
D) Provide direct evidence about the balances in accounts.

Question 15

Auditors' analytical procedures can include review of prior year adjusting entries, conversations with client personnel, and study of the minutes of board of directors' meetings.

Accepted Answer

A) True 
 B)False

Question 16

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent:

Accepted Answer

A) As a substantive test and in the final review stage. 
B) As a substantive test but not in the final review stage. 
C) In the final review stage but not as a substantive test. 
D) Neither in the final review stage nor as a substantive test. 
A) As a substantive test and in the final review stage. 
B) As a substantive test but not in the final review stage. 
C) In the final review stage but not as a substantive test. 
D) Neither in the final review stage nor as a substantive test.

Question 17

The auditor's objective in obtaining an understanding of the client's business and risks is to design audit procedures that will serve as a basis for their report.

Accepted Answer

A) True 
 B)False

Question 18

An auditor should assess a client's business risks:

Accepted Answer

A) Early in the engagement, based on discussion with management. 
B) At the end of the engagement after all evidence has been assembled. 
C) As part of the year end evidence gathering. 
D) Only if the client requests the auditor to do so in the engagement letter. 
A) Early in the engagement, based on discussion with management. 
B) At the end of the engagement after all evidence has been assembled. 
C) As part of the year end evidence gathering. 
D) Only if the client requests the auditor to do so in the engagement letter.

Question 19

The audit objective specifying that "all recorded assets, liabilities, and transactions represent real assets, liabilities, revenues, and expenses" is related most closely to which assertion(s)?

Accepted Answer

A) Existence or occurrence 
B) Rights and obligations 
C) Completeness 
D) Presentation and disclosure 
A) Existence or occurrence 
B) Rights and obligations 
C) Completeness 
D) Presentation and disclosure

Question 20

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

Accepted Answer

A) True 
 B)False

Which of the following is likely to be found in the minutes of the board of directors?

If an auditor were to use 5% of income before taxes as a basis for materiality, it would be an example of judgment based on

The detailed audit plan guides development of the overall audit strategy.

Generally accepted auditing standards require that analytical procedures:

A completeness error occurs when an account balance is overstated.

Give some examples of cut off errors and explain what management assertions are affected by such errors.

During the preliminary analytical review, the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold.The auditors should consider performing a careful lower-of-cost-or-market valuation of the year-end inventory.

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the auditor's expectations.If management is unable to provide an acceptable explanation, the auditor should

The overall audit strategy typically includes:

In a typical audit, testing of internal controls occurs:

In the planning stage, analytical procedures are used to

Auditors' analytical procedures can include review of prior year adjusting entries, conversations with client personnel, and study of the minutes of board of directors' meetings.

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent:

The auditor's objective in obtaining an understanding of the client's business and risks is to design audit procedures that will serve as a basis for their report.

An auditor should assess a client's business risks:

The audit objective specifying that "all recorded assets, liabilities, and transactions represent real assets, liabilities, revenues, and expenses" is related most closely to which assertion(s)?

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

Introduction to Auditing

Audit, Assurance, and Quality Control Standards

Reports on Audited Financial Statements and Audited Internal Controlt

Professional Ethics and Auditor Responsibilities

Legal Liability

Assessing Risks and Internal Control

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

Revenues, Receivables, and Receipts Process

Purchases, Payables, and Payments Processtrue

Production and Payroll Process

Finance and Investment Process

Completing the Audit

Other Public Accounting Services and Reports

Fraud Awareness Auditing

Filters

Exam 6: Preliminary Audit Planning: Understanding the Auditee

Which of the following is likely to be found in the minutes of the board of directors?

If an auditor were to use 5% of income before taxes as a basis for materiality, it would be an example of judgment based on

The detailed audit plan guides development of the overall audit strategy.

Generally accepted auditing standards require that analytical procedures:

A completeness error occurs when an account balance is overstated.

Give some examples of cut off errors and explain what management assertions are affected by such errors.

During the preliminary analytical review, the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold.The auditors should consider performing a careful lower-of-cost-or-market valuation of the year-end inventory.

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the auditor's expectations.If management is unable to provide an acceptable explanation, the auditor should

The overall audit strategy typically includes:

In a typical audit, testing of internal controls occurs:

In the planning stage, analytical procedures are used to

Auditors' analytical procedures can include review of prior year adjusting entries, conversations with client personnel, and study of the minutes of board of directors' meetings.

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent:

The auditor's objective in obtaining an understanding of the client's business and risks is to design audit procedures that will serve as a basis for their report.

An auditor should assess a client's business risks:

The audit objective specifying that "all recorded assets, liabilities, and transactions represent real assets, liabilities, revenues, and expenses" is related most closely to which assertion(s)?

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

Introduction to Auditing

Audit, Assurance, and Quality Control Standards

Reports on Audited Financial Statements and Audited Internal Controlt

Professional Ethics and Auditor Responsibilities

Legal Liability

Assessing Risks and Internal Control

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

Revenues, Receivables, and Receipts Process

Purchases, Payables, and Payments Processtrue

Production and Payroll Process

Finance and Investment Process

Completing the Audit

Other Public Accounting Services and Reports

Fraud Awareness Auditing

Filters