Question 1

When dealing with audit risk,

Accepted Answer

A) audit risk should not be a factor when determining if a new client should be accepted. 
B) audits with a low acceptable audit risk generally result in lower audit fees. 
C) if management of a company has a reputation of integrity,but is also known to take aggressive financial risks,the auditor should not accept the company as a new client. 
D) if the auditor concludes that acceptable audit risk is low,but the client is still acceptable,the auditor may still accept the engagement but increase the fee proposed to the client. 
A) audit risk should not be a factor when determining if a new client should be accepted. 
B) audits with a low acceptable audit risk generally result in lower audit fees. 
C) if management of a company has a reputation of integrity,but is also known to take aggressive financial risks,the auditor should not accept the company as a new client. 
D) if the auditor concludes that acceptable audit risk is low,but the client is still acceptable,the auditor may still accept the engagement but increase the fee proposed to the client. D

Question 2

Which of the following is a correct statement regarding performance materiality?

Accepted Answer

A) Determining performance materiality is necessary because auditors accumulate evidence by segments. 
B) The level of performance materiality does not affect the amount of evidence needed. 
C) Performance materiality cannot vary for different classes of transactions. 
D) Performance materiality is required for public companies,but not for private companies. 
A) Determining performance materiality is necessary because auditors accumulate evidence by segments. 
B) The level of performance materiality does not affect the amount of evidence needed. 
C) Performance materiality cannot vary for different classes of transactions. 
D) Performance materiality is required for public companies,but not for private companies. A

Question 3

The auditor determines that Matthews Company occupies the 3ʳᵈ floor of an office tower for which it pays no rent.The most likely explanation is

Accepted Answer

A) they got lucky the landlord hasn't noticed the lack of payments. 
B) the landlord has weak internal controls over billings. 
C) a related party transaction in which a major shareholder owns the office tower. 
D) Matthews Company is engaging in fraudulent activities. 
A) they got lucky the landlord hasn't noticed the lack of payments. 
B) the landlord has weak internal controls over billings. 
C) a related party transaction in which a major shareholder owns the office tower. 
D) Matthews Company is engaging in fraudulent activities. C

Question 4

Auditors should understand client objectives related to

Accepted Answer

A) reliability of financial reporting. 
B) effectiveness and efficiency of operations. 
C) compliance with laws and regulations. 
D) all of the above. 
A) reliability of financial reporting. 
B) effectiveness and efficiency of operations. 
C) compliance with laws and regulations. 
D) all of the above.

Question 5

Because of the lack of independence between related parties,the Sarbanes-Oxley Act prohibits all related party transactions.

Accepted Answer

A) True 
 B)False

Question 6

Discuss the required communications between predecessor and successor auditors.

Accepted Answer

Auditing standards require a successor a

Question 7

Which is usually included in the engagement letter?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 8

When a successor auditor contacts a company's previous auditor,the predecessor auditor is required to respond fully and without limit to the request for information.

Accepted Answer

A) True 
 B)False

Question 9

The preliminary audit strategy

Accepted Answer

A) is set before the auditor understands the client's reasons for the audit. 
B) guides the development of the audit plan. 
C) is determined after the engagement staffing is set. 
D) is the detailed steps to be followed for the substantive audit tests. 
A) is set before the auditor understands the client's reasons for the audit. 
B) guides the development of the audit plan. 
C) is determined after the engagement staffing is set. 
D) is the detailed steps to be followed for the substantive audit tests.

Question 10

A successor auditor may perform which of the following for a new audit client?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 11

The auditor is likely to accumulate more evidence when the audit is for a company

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 12

If a prospective client has been audited in the past,the successor auditor will typically rely solely on the representations about the client by the predecessor auditor.

Accepted Answer

A) True 
 B)False

Question 13

When performing planning analytical procedures for a client the auditor detected that the gross profit percentage had declined by 50% from the previous year to the year currently under audit.The auditor should

Accepted Answer

A) investigate the possibility the client may have made an error in their cost of goods sold computation. 
B) assist management in developing greater cost efficiencies in their product line. 
C) prepare a going concern opinion for the client. 
D) advise the client to have extensive disclosure to alleviate investor concerns. 
A) investigate the possibility the client may have made an error in their cost of goods sold computation. 
B) assist management in developing greater cost efficiencies in their product line. 
C) prepare a going concern opinion for the client. 
D) advise the client to have extensive disclosure to alleviate investor concerns.

Question 14

Which of the following best describes the corporate minutes of an entity?

Accepted Answer

A) official record of the meetings of the board of directors and the stockholders 
B) unofficial record of the meeting of the board of directors 
C) official record of management meeting with investors and creditors of the company 
D) unofficial record of the board of directors meetings 
A) official record of the meetings of the board of directors and the stockholders 
B) unofficial record of the meeting of the board of directors 
C) official record of management meeting with investors and creditors of the company 
D) unofficial record of the board of directors meetings

Question 15

Before accepting a new client,most CPA firms investigate the company to determine its acceptability.However,AICPA confidentiality requirements prohibit CPA firms from contacting certain parties-namely the company's attorneys and bankers-during this investigation.

Accepted Answer

A) True 
 B)False

Question 16

There are three primary reasons for obtaining a thorough understanding of the client's industry and external environment.What are these reasons?

Accepted Answer

The three reasons are:
•Risks associated

Question 17

The purpose of an engagement letter is to

Accepted Answer

A) document the CPA firm's responsibility to external users of the audited financial statements. 
B) document the terms of the engagement. 
C) notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated. 
D) emphasize management's responsibility for approving the audit program. 
A) document the CPA firm's responsibility to external users of the audited financial statements. 
B) document the terms of the engagement. 
C) notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated. 
D) emphasize management's responsibility for approving the audit program.

Question 18

Preliminary judgments about materiality are often changed during the course of the engagement.

Accepted Answer

A) True 
 B)False

Question 19

Amounts involving fraud are not usually considered qualitative factors affecting the preliminary materiality judgment.

Accepted Answer

A) True 
 B)False

Question 20

In order to be meaningful,a company's ratios should be compared to their prior year's ratios,not industry benchmarks.

Accepted Answer

A) True 
 B)False

Exam 8: Audit Planning and Analytical Procedures

When dealing with audit risk,

Which of the following is a correct statement regarding performance materiality?

The auditor determines that Matthews Company occupies the 3ʳᵈ floor of an office tower for which it pays no rent.The most likely explanation is

Auditors should understand client objectives related to

Because of the lack of independence between related parties,the Sarbanes-Oxley Act prohibits all related party transactions.

Discuss the required communications between predecessor and successor auditors.

Which is usually included in the engagement letter?

When a successor auditor contacts a company's previous auditor,the predecessor auditor is required to respond fully and without limit to the request for information.

The preliminary audit strategy

A successor auditor may perform which of the following for a new audit client?

The auditor is likely to accumulate more evidence when the audit is for a company

If a prospective client has been audited in the past,the successor auditor will typically rely solely on the representations about the client by the predecessor auditor.

When performing planning analytical procedures for a client the auditor detected that the gross profit percentage had declined by 50% from the previous year to the year currently under audit.The auditor should

Which of the following best describes the corporate minutes of an entity?

Before accepting a new client,most CPA firms investigate the company to determine its acceptability.However,AICPA confidentiality requirements prohibit CPA firms from contacting certain parties-namely the company's attorneys and bankers-during this investigation.

There are three primary reasons for obtaining a thorough understanding of the client's industry and external environment.What are these reasons?

The purpose of an engagement letter is to

Preliminary judgments about materiality are often changed during the course of the engagement.

Amounts involving fraud are not usually considered qualitative factors affecting the preliminary materiality judgment.

In order to be meaningful,a company's ratios should be compared to their prior year's ratios,not industry benchmarks.

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Materiality and Risk

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls,

Completing the Tests in the Acquisition and Payment Cycle:

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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