Question 1

Transactions with related parties must be disclosed in the financial statements if they are deemed to be material.

Accepted Answer

A) True 
 B)False

Question 2

Because auditors are responsible for having appropriate competence and capabilities to perform an audit,auditors are not normally permitted to consult with outside specialists during an audit engagement.

Accepted Answer

A) True 
 B)False

Question 3

Which is usually included in an engagement letter?

Accepted Answer

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

Question 4

The five steps in applying materiality are listed below in random order. 1. Estimate the combined misstatement.
2) Estimate the total misstatement in the segment.
3) Set materiality for the financial statements as a whole.
4) Determine performance materiality.
5) Compare combined estimate with preliminary judgment about materiality.
The first three steps in correct sequence would be

Accepted Answer

A) 1,2,5 
B) 3,4,2 
C) 2,1,5 
D) 3,2,4 
A) 1,2,5 
B) 3,4,2 
C) 2,1,5 
D) 3,2,4

Question 5

If an auditor establishes a relatively high level for materiality,then the auditor will

Accepted Answer

A) accumulate more evidence than if a lower level had been set. 
B) accumulate less evidence than if a lower level had been set. 
C) accumulate approximately the same evidence as would be the case were materiality lower. 
D) accumulate an undetermined amount of evidence. 
A) accumulate more evidence than if a lower level had been set. 
B) accumulate less evidence than if a lower level had been set. 
C) accumulate approximately the same evidence as would be the case were materiality lower. 
D) accumulate an undetermined amount of evidence.

Question 6

_______ is the risk that the financial statements contain a material misstatement due to fraud or error prior to the audit.

Accepted Answer

A) Inherent risk 
B) Client business risk 
C) Acceptable audit risk 
D) Risk of material misstatement 
A) Inherent risk 
B) Client business risk 
C) Acceptable audit risk 
D) Risk of material misstatement

Question 7

There are three main reasons why an auditor should properly plan audit engagements.Discuss each of these reasons.

Accepted Answer

Three reasons why an auditor should prop

Question 8

The first phase in planning an audit and designing an audit approach is to

Accepted Answer

A) accept the client and perform initial audit planning. 
B) set the preliminary judgment of materiality. 
C) understand the client's business and industry. 
D) perform preliminary audit procedures. 
A) accept the client and perform initial audit planning. 
B) set the preliminary judgment of materiality. 
C) understand the client's business and industry. 
D) perform preliminary audit procedures.

Question 9

The first step in applying materiality is to determine performance materiality.

Accepted Answer

A) True 
 B)False

Question 10

The amount(s)set by the auditor at less than the materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole is referred to as

Accepted Answer

A) the materiality range. 
B) the error range. 
C) tolerable materiality. 
D) performance materiality. 
A) the materiality range. 
B) the error range. 
C) tolerable materiality. 
D) performance materiality.

Question 11

An official record of meetings of the board of directors and stockholders is included in the corporate

Accepted Answer

A) bylaws. 
B) charter. 
C) minutes. 
D) license. 
A) bylaws. 
B) charter. 
C) minutes. 
D) license.

Question 12

Auditors should obtain copies of the client's code of ethics and minutes of the meetings of the board of directors to aid in their understanding of the company's management and governance structure.

Accepted Answer

A) True 
 B)False

Question 13

Most practitioners allocate the preliminary judgment about materiality to both the balance sheet and income statement accounts.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is an incorrect statement regarding the allocation of the preliminary judgment about materiality to balance sheet accounts?

Accepted Answer

A) Auditors expect certain accounts to have more misstatements than others. 
B) The allocation has virtually no effect on audit costs because the auditor must collect sufficient appropriate audit evidence. 
C) Auditors expect to identify overstatements as well as understatements in the accounts. 
D) Relative audit costs affect the allocation. 
A) Auditors expect certain accounts to have more misstatements than others. 
B) The allocation has virtually no effect on audit costs because the auditor must collect sufficient appropriate audit evidence. 
C) Auditors expect to identify overstatements as well as understatements in the accounts. 
D) Relative audit costs affect the allocation.

Question 15

Which of the following is part of planning?

Accepted Answer

A) Set materiality for the financial statements as a whole. 
B) Estimate total misstatement in the segment. 
C) Estimate the combined misstatement. 
D) Compare the combined estimated with preliminary judgment. 
A) Set materiality for the financial statements as a whole. 
B) Estimate total misstatement in the segment. 
C) Estimate the combined misstatement. 
D) Compare the combined estimated with preliminary judgment.

Question 16

Discuss the primary purpose of an audit engagement letter.Is an engagement letter required?

Accepted Answer

The purpose of an audit engagement lette

Question 17

The auditor should read the corporate minutes to obtain authorizations and other information that is relevant to performing the audit.

Accepted Answer

A) True 
 B)False

Question 18

Likely misstatements can result from

Accepted Answer

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

Question 19

Which of the following normally signs the engagement letter for an audit of a private company?

Accepted Answer

A) management 
B) board of directors representative 
C) audit committee representative 
D) corporate treasurer 
A) management 
B) board of directors representative 
C) audit committee representative 
D) corporate treasurer

Question 20

Auditor's allocate the preliminary judgment about materiality to financial statement segments rather than by financial statements as a whole.What is the term for the auditor's allocation of preliminary misstatement to account balances?
 What are three difficulties auditors face when allocating materiality to balance sheet accounts?

Accepted Answer

Performance materiality is the term for

Exam 8: Audit Planning and Analytical Procedures

Transactions with related parties must be disclosed in the financial statements if they are deemed to be material.

Because auditors are responsible for having appropriate competence and capabilities to perform an audit,auditors are not normally permitted to consult with outside specialists during an audit engagement.

Which is usually included in an engagement letter?

If an auditor establishes a relatively high level for materiality,then the auditor will

_______ is the risk that the financial statements contain a material misstatement due to fraud or error prior to the audit.

There are three main reasons why an auditor should properly plan audit engagements.Discuss each of these reasons.

The first phase in planning an audit and designing an audit approach is to

The first step in applying materiality is to determine performance materiality.

The amount(s)set by the auditor at less than the materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole is referred to as

An official record of meetings of the board of directors and stockholders is included in the corporate

Auditors should obtain copies of the client's code of ethics and minutes of the meetings of the board of directors to aid in their understanding of the company's management and governance structure.

Most practitioners allocate the preliminary judgment about materiality to both the balance sheet and income statement accounts.

Which of the following is an incorrect statement regarding the allocation of the preliminary judgment about materiality to balance sheet accounts?

Which of the following is part of planning?

Discuss the primary purpose of an audit engagement letter.Is an engagement letter required?

The auditor should read the corporate minutes to obtain authorizations and other information that is relevant to performing the audit.

Likely misstatements can result from

Which of the following normally signs the engagement letter for an audit of a private company?

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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