Exam 6: Client Acceptance and Planning the Audit

There are many types of analytical procedures that the auditor can conduct during the planning stage of the financial statement audit. What is the purpose of calculating key ratios for the client's business and comparing them with industry averages?

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

During the audit engagement, the primary auditor may rely on other individuals, such as specialists, other auditors, and internal auditors (secondary auditors). The primary way to defend the auditor against negligence should such other individuals conduct poor quality work is whether the

When the auditor has properly planned and performed the audit to reduce risk to an acceptably low level that is consistent with the objective of the audit, this means that the auditor has conducted enough work to

In order to assess if a company is a going concern, the auditor can calculate which of the following ratios during the audit planning and compare with previous years and successful companies in the industry?

During the course of an audit engagement an auditor prepares and accumulates audit working papers. The primary purpose of the audit working papers is to

Jibbery Company has numerous transactions with related parties. For example, it has borrowed money from shareholders, purchases raw materials from a subsidiary company, and sells finished goods to its parent company. Which of the following describes one of the impacts of these transactions on risk assessment ?

What are the three main factors that influence the organizational structure of all public accounting firms?

If the client has set unreasonable objectives or if the performance measurement system encourages aggressive accounting, the auditor will

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

Mario, the owner of Clayton's ice cream, is giving Steve, the manager of the audit, a private tour of the production facilities. By doing the tour, Steve will

Which of the following is an important purpose of an organizational code of ethics and the associated processes to ensure adherence?

The Sarbanes-Oxley Act requires management to certify that it has informed the auditor and audit committee of any

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the

Which of the following would you expect to find in a corporation's bylaws?

Frontenac Construction, your audit client, is a construction company. In the initial planning phase of the audit, you identified that it has many contracts with severe non-performance clauses if any of the current constructions are not completed on the dates set in the contracts over the next three years. As the auditor, you would set the inherent risk for sales and penalties as

Black Rock Limited is a marble and tile outlet that has a large outdoor area as well as an indoor showroom for a variety of stone, tile, and marble. It is July and your firm has just been appointed as the auditor for the September year-end audit. The previous auditing firm had conducted review engagements. The company's bank has asked for audited financial statements for the current year end. Required: A) What is the purpose of obtaining knowledge of the client's industry and business environment? Identify at least three procedures that you could undertake in this area. B) What is the purpose of obtaining knowledge of the client's business? Identify at least three procedures that you could undertake in this area.

Simon owns a clothing store, Simonello. Simonello recently purchased a material amount of fabric from Simonique Inc., a textile company also owned by Simon. With regards to this transaction, the auditors should

Your preliminary discussion with European Real Estate Management (EREM) Corporation indicated that the company was owned by three Swedish individuals who sold limited liability partnerships of shopping malls, office buildings, and large residential apartment buildings to European investors. Often, a single shopping mall was broken up into several limited liability partnerships to make the ownership pieces small enough to sell easily. In some cases these partnership units were sold to European companies, who diversified and bought units in several buildings. Other units were purchased by individuals. If a property looked particularly promising, the owners of EREM occasionally purchased units or advised their wives and family members to purchase units. Required: Explain why it is important for the auditor to identify related party transactions. Why are related party transactions a high-risk area for the EREM audit?

There are many types of analytical procedures that the auditor can conduct during the planning stage of the financial statement audit. What is the purpose of comparing the gross margin with prior years and looking for large fluctuations?