Exam 7: Accepting the Engagement and

Intended users should have no effect on audit planning.

The second standard of fieldwork states: The work is to be adequately planned, and assistants, if any, are to be properly supervised.

Before accepting an engagement, the auditor should evaluate whether other conditions exist that raise questions as to the prospective client's auditability.

Before accepting an engagement, to perform an audit for 2006, the auditor should assess the auditability of the prospective client. Which of the following conditions would most likely cause the auditor to question the auditability of the client?

Professional responsibility to colleagues requires the predecessor auditor to initiate communication with the successor.

Which of the following items is not one of the seven key steps in performing risk assessment procedures?

The audit committee of the board of directors may provide the auditor with special insights into the client's business and industry. Which of the following is least likely to be information obtained from the audit committee?

The "performing audit tests" phase of the audit is also referred to as performing the fieldwork.

There are several critical aspects of an entity's business operations that are important for the auditor to understand. These include all of the following except:

Which one of the following is not an example of a specialist as defined by SAS 73?

There are six identifiable steps associated with client acceptance and retention: A.evaluating integrity of management B.identifying special circumstances and unusual risks C.assessing competence to perform audit D.evaluating independence E.making the decision to accept or decline the audit F.preparing engagement letter REQUIRED: For each of the following firm policies or actions taken during the accept/reject phase of the audit, indicate, using the above letters, the step to which it relates. 1.National office approval is required for any new audit engagement that cannot commence until after the balance sheet data. 2.Obtain the client's approval to communicate with the predecessor auditor. 3.For new clients, determine that acceptance would not result in any conflicts of interest with that of other clients. 4.Written contracts are required on all professional engagements. 5.Plan to review and test all work performed for the audit team by client personnel. 6.Identify the intended users of the audited financial statements. 7.Audit teams must contain a partner, at least one manager and at least one senior. 8.Formally document the nature of the engagement and the auditor's responsibilities. 9.Assess the prospective client's legal and financial stability. 10.Before accepting a new engagement, assess the probable impact on the firm's overall work schedule and ability to service existing clients. 11.For potential new SEC clients, review the report filed with the SEC concerning change in auditors. 12.Assess the general condition and availability of the more important accounting records. 13.Circulate the name of all prospective clients to the professional staff to identify any prohibited financial or business relationships. 14.Consider the need for the use of a specialist on the engagement. 15.For continuing clients, all top management changes require partner-in-charge review.

Immediately after accepting an audit engagement, auditors should determine whether they have the professional competence to complete the engagement in accordance with GAAS.

Knowledge of an entity's financial reporting activities includes understanding such matters as the entity's:

In the investigation of a potential new client, if the client refuses to give permission to inquire of the predecessor auditor, or if the predecessor does not respond fully, the successor auditor should:

Identify the two generally accepted auditing standards that apply to accepting an audit engagement. For each standard, indicate the primary means of complying with the standard.

Which of the following is not normally found in the engagement letter?

A CPA firm should address the acceptability and continuation of audit clients in a much different way than it addresses the acceptance of new clients.

The quality control element (s) most directly related to the auditor's assessment of her competence to perform the audit is (are):

To adequately plan an audit, the auditor should obtain sufficient knowledge of the client's business to understand events, transactions, and practices that may have a significant effect on the financial statements. The auditor needs knowledge about, for example, the type of business, including products and services, company locations, and marketing methods. REQUIRED: 1.List at least four additional items about which the auditor should be knowledgeable. 2.List at least four audit procedures that would normally be used in obtaining this understanding. 3.How would the auditor use this information in performing a financial statement audit?