Exam 6: Client Acceptance and Planning the Audit

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

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

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 prepaid expenses and related expense accounts with those of prior years?

An effective board of directors helps ensure that the company takes only appropriate risks. The audit committee can

During discussion and inquiry with management, the auditor determined that the company has started a new line of business that requires a substantial investment in manufacturing equipment. The company has also implemented wireless scanning for its warehouse and inventory. Which of the following techniques will the auditor likely use to corroborate these statements?

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

Why might the decisions about materiality and risks be different for the internal auditor than for the external auditor when conducting an audit of a system?

An important reason for adequately planning the audit engagement is to

When reading the corporate minutes, the auditor extracted the approved annual salary for the President, the Chief Executive Officer, and other senior executives. What audit step would the auditor likely conduct with this information?

Which of the following is a factor that relates to "attitudes or rationalization" to commit fraudulent financial reporting?

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?

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

A thorough understanding of the client's business and industry and knowledge about the company's operations are essential for doing an adequate audit. Why do auditors need greater knowledge about major customers and suppliers and related risks?

Organizations with a good control environment are able to document their positive "tone at the top" with a clear code of ethics. How would the auditor include the presence of such a code of ethics in the risk assessment process?

One of the purposes of developing a client risk profile is to assist the auditor in

If management and salespeople are compensated on the basis of achieving high sales targets, there is increased incentive to record sales before they have been earned. In such a situation, the auditor will increase the extent of testing for which of the following transaction-related audit objectives for sales?

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

A code of ethics is an important document for organizational conduct. In response to the Sarbanes-Oxley Act in the United States, the SEC requires which of the following actions for organizations that have not adopted a code of ethics?

In addition to direct impacts on the financial statements, the auditor also needs to consider indirect effects. An assessment of client objectives and strategies can reveal issues that could lower income or cause contingent liabilities. Which of the following could cause lost sales, increases in warranty expenses, and product liability claims?