Question 1

Within the public accounting profession, there is little competition among firms for clients.

Accepted Answer

A) True 
 B)False

Question 2

An engagement letter is a required step under generally accepted auditing standards.

Accepted Answer

A) True 
 B)False

Question 3

An engagement should be declined if due professional care cannot be exercised throughout the audit.

Accepted Answer

A) True 
 B)False

Question 4

The importance of the accept/reject decision for a particular client is reflected in the inclusion of "acceptance and continuation of clients" as:

Accepted Answer

A)  the subject of Statement of Financial Accounting Standards 96. 
B)  the subject of Statement on Auditing Standards 7. 
C)  a separate rule in the AICPA Code of Conduct. 
D)  an explicit part of the General Standards. 
E)  one of the quality control elements for CPA firms. 
A)  the subject of Statement of Financial Accounting Standards 96. 
B)  the subject of Statement on Auditing Standards 7. 
C)  a separate rule in the AICPA Code of Conduct. 
D)  an explicit part of the General Standards. 
E)  one of the quality control elements for CPA firms.

Question 5

An auditor is not obligated to perform a financial statement audit for any entity that requests it.

Accepted Answer

A) True 
 B)False

Question 6

In the investigation of a potential new client, besides inquiring of the predecessor auditor, the successor auditor should make inquires of other third parties. Which of the following is least likely to be included in this inquiry?

Accepted Answer

A)  attorneys 
B)  bankers 
C)  the chamber of commerce 
D)  customers 
E)  the better business bureau 
A)  attorneys 
B)  bankers 
C)  the chamber of commerce 
D)  customers 
E)  the better business bureau

Question 7

Knowledge of an entity's investing activities includes understanding the entity's leasing of property, plant, and equipment for use in the business.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following tools would an entity be least likely to use to monitor or review its financial performance:

Accepted Answer

A)  credit ratings. 
B)  forecasts. 
C)  ratios. 
D)  awards. 
E)  variance analysis 
A)  credit ratings. 
B)  forecasts. 
C)  ratios. 
D)  awards. 
E)  variance analysis

Question 9

Before accepting an engagement, the auditor should evaluate whether other conditions exist that raise questions as to the prospective client's auditability. Which of the following factors would be the least likely to cause concern about an entity's auditability?

Accepted Answer

A)  Related party transactions. 
B)  Lack of audit trail. 
C)  Disregard of responsibility to maintain adequate internal controls. 
D)  Important evidence available only in electronic form. 
E)  Inability to review the details supporting beginning balances. 
A)  Related party transactions. 
B)  Lack of audit trail. 
C)  Disregard of responsibility to maintain adequate internal controls. 
D)  Important evidence available only in electronic form. 
E)  Inability to review the details supporting beginning balances.

Question 10

In most cases, the accept/reject decision for an audit client is made six to nine months before the client's fiscal year-end.

Accepted Answer

A) True 
 B)False

Question 11

Knowledge of external factors affecting an entity's business is necessary when planning an audit. Which of the following factors would least likely be considered an external factor:

Accepted Answer

A)  interest rates. 
B)  market demand. 
C)  Inflation. 
D)  industry-specific accounting practices. 
E)  related party transactions. 
A)  interest rates. 
B)  market demand. 
C)  Inflation. 
D)  industry-specific accounting practices. 
E)  related party transactions.

Question 12

Which of the following best describes the auditor's responsibilities concerning related parties?

Accepted Answer

A)  investigate those transactions encountered during the audit 
B)  as related parties are discovered during the course of the audit, their existence should be noted in the working papers 
C)  obtain a list of all board members and place in the working papers 
D)  investigate the background of all related parties 
E)  determine, in the planning stage, the existence of related parties 
A)  investigate those transactions encountered during the audit 
B)  as related parties are discovered during the course of the audit, their existence should be noted in the working papers 
C)  obtain a list of all board members and place in the working papers 
D)  investigate the background of all related parties 
E)  determine, in the planning stage, the existence of related parties

Question 13

Immediately after accepting a new audit client, the auditing firm must evaluate whether there are any circumstances that would impair its independence with respect to the client.

Accepted Answer

A) True 
 B)False

Question 14

A CPA firm auditor should address the acceptability and continuation of existing audit clients the same way it addresses the acceptance of new clients.

Accepted Answer

A) True 
 B)False

Question 15

Which one of the following is not a key step in planning the audit?

Accepted Answer

A)  Perform analytical procedures. 
B)  Consider audit risk. 
C)  Make preliminary judgments about materiality levels. 
D)  Develop preliminary audit strategies for significant assertions. 
E)  Obtain an understanding of the client's external controls. 
A)  Perform analytical procedures. 
B)  Consider audit risk. 
C)  Make preliminary judgments about materiality levels. 
D)  Develop preliminary audit strategies for significant assertions. 
E)  Obtain an understanding of the client's external controls.

Question 16

The third phase of the audit involves performing audit tests. The primary purpose of this step is to obtain evidence about:

Accepted Answer

A)  the integrity of management. 
B)  the effectiveness of management. 
C)  the effectiveness of the internal control structure. 
D)  the effectiveness and the integrity of management. 
E)  the effectiveness of the internal control structure and the fairness of the financial statements. 
A)  the integrity of management. 
B)  the effectiveness of management. 
C)  the effectiveness of the internal control structure. 
D)  the effectiveness and the integrity of management. 
E)  the effectiveness of the internal control structure and the fairness of the financial statements.

Within the public accounting profession, there is little competition among firms for clients.

An engagement letter is a required step under generally accepted auditing standards.

An engagement should be declined if due professional care cannot be exercised throughout the audit.

The importance of the accept/reject decision for a particular client is reflected in the inclusion of "acceptance and continuation of clients" as:

An auditor is not obligated to perform a financial statement audit for any entity that requests it.

In the investigation of a potential new client, besides inquiring of the predecessor auditor, the successor auditor should make inquires of other third parties. Which of the following is least likely to be included in this inquiry?

Knowledge of an entity's investing activities includes understanding the entity's leasing of property, plant, and equipment for use in the business.

Which of the following tools would an entity be least likely to use to monitor or review its financial performance:

Before accepting an engagement, the auditor should evaluate whether other conditions exist that raise questions as to the prospective client's auditability. Which of the following factors would be the least likely to cause concern about an entity's auditability?

In most cases, the accept/reject decision for an audit client is made six to nine months before the client's fiscal year-end.

Knowledge of external factors affecting an entity's business is necessary when planning an audit. Which of the following factors would least likely be considered an external factor:

Which of the following best describes the auditor's responsibilities concerning related parties?

Immediately after accepting a new audit client, the auditing firm must evaluate whether there are any circumstances that would impair its independence with respect to the client.

A CPA firm auditor should address the acceptability and continuation of existing audit clients the same way it addresses the acceptance of new clients.

Which one of the following is not a key step in planning the audit?

The third phase of the audit involves performing audit tests. The primary purpose of this step is to obtain evidence about:

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Auditors Legal Liability

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Materiality Decisions and Performing Analytical Procedures

Audit Risk, Including the Risk of Fraud

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Procedures in Response to Assessed Risks: Substantive Tests

Audit Sampling in Substantive Tests

Auditing the Revenue Cycle

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

Filters

Exam 7: Accepting the Engagement and

Within the public accounting profession, there is little competition among firms for clients.

An engagement letter is a required step under generally accepted auditing standards.

An engagement should be declined if due professional care cannot be exercised throughout the audit.

The importance of the accept/reject decision for a particular client is reflected in the inclusion of "acceptance and continuation of clients" as:

An auditor is not obligated to perform a financial statement audit for any entity that requests it.

In the investigation of a potential new client, besides inquiring of the predecessor auditor, the successor auditor should make inquires of other third parties. Which of the following is least likely to be included in this inquiry?

Knowledge of an entity's investing activities includes understanding the entity's leasing of property, plant, and equipment for use in the business.

Which of the following tools would an entity be least likely to use to monitor or review its financial performance:

Before accepting an engagement, the auditor should evaluate whether other conditions exist that raise questions as to the prospective client's auditability. Which of the following factors would be the least likely to cause concern about an entity's auditability?

In most cases, the accept/reject decision for an audit client is made six to nine months before the client's fiscal year-end.

Knowledge of external factors affecting an entity's business is necessary when planning an audit. Which of the following factors would least likely be considered an external factor:

Which of the following best describes the auditor's responsibilities concerning related parties?

Immediately after accepting a new audit client, the auditing firm must evaluate whether there are any circumstances that would impair its independence with respect to the client.

A CPA firm auditor should address the acceptability and continuation of existing audit clients the same way it addresses the acceptance of new clients.

Which one of the following is not a key step in planning the audit?

The third phase of the audit involves performing audit tests. The primary purpose of this step is to obtain evidence about:

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Auditors Legal Liability

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Materiality Decisions and Performing Analytical Procedures

Audit Risk, Including the Risk of Fraud

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Procedures in Response to Assessed Risks: Substantive Tests

Audit Sampling in Substantive Tests

Auditing the Revenue Cycle

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

Filters