Question 1

Which is a liquidity activity ratio?

Accepted Answer

A) profit margin 
B) inventory turnover 
C) return on assets 
D) times interest earned 
A) profit margin 
B) inventory turnover 
C) return on assets 
D) times interest earned

Question 2

Operations are approaches followed by the entity to achieve organizational objectives.

Accepted Answer

A) True 
 B)False

Question 3

In what order should the following steps occur?
A. Set preliminary judgment of materiality and performance materiality.
B. Understand the clients business and industry.
C. Perform preliminary analytical procedures.
D. Accept the client and perform initial audit planning.

Accepted Answer

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

Question 4

An engagement letter sent to a publicly held audit client usually would not include a(n)

Accepted Answer

A) reference to the auditor's responsibility for the detection of errors or irregularities. 
B) estimation of the time to be spent on the audit work by audit staff and management. 
C) statement that management advisory services would be made available upon request. 
D) reference to management's responsibility for the financial statements. 
A) reference to the auditor's responsibility for the detection of errors or irregularities. 
B) estimation of the time to be spent on the audit work by audit staff and management. 
C) statement that management advisory services would be made available upon request. 
D) reference to management's responsibility for the financial statements.

Question 5

If an auditor assigns a tolerable misstatement of $1,000 to accounts payable,he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a reason that the auditors may change the preliminary judgment about materiality?

Accepted Answer

A) The auditors decide that the preliminary judgment was too large. 
B) The auditors decide that the preliminary judgment was too small. 
C) Client circumstance may have changed due to qualitative events. 
D) all of the above 
A) The auditors decide that the preliminary judgment was too large. 
B) The auditors decide that the preliminary judgment was too small. 
C) Client circumstance may have changed due to qualitative events. 
D) all of the above

Question 7

Material transactions between the client and the client's related parties must be disclosed in the auditor's report.

Accepted Answer

A) True 
 B)False

Question 8

Amounts involving fraud are usually considered ________ important than unintentional errors of equal dollar amounts.

Accepted Answer

A) less 
B) no less 
C) no more 
D) more 
A) less 
B) no less 
C) no more 
D) more

Question 9

When using financial ratios,the most important comparisons are to those of previous years for the company and to industry averages or similar companies for the same year.

Accepted Answer

A) True 
 B)False

Question 10

Discuss the essential activities involved in the initial planning of an audit.

Accepted Answer

There are four essential activities invo

Question 11

When dealing with materiality,

Accepted Answer

A) if the client refuses to correct a material misstatement,the auditor is required to adjust the financial statements. 
B) management is responsible for determining whether financial statements are materially misstated. 
C) materiality must be determined as as percentage of sales. 
D) the auditor must bring any material misstatements to the client's attention. 
A) if the client refuses to correct a material misstatement,the auditor is required to adjust the financial statements. 
B) management is responsible for determining whether financial statements are materially misstated. 
C) materiality must be determined as as percentage of sales. 
D) the auditor must bring any material misstatements to the client's attention.

Question 12

Define the term "related party" and discuss why an auditor should identify the client's related parties early in the audit.

Accepted Answer

A related party is an affiliated company

Question 13

Both overstatements and understatements must be considered when allocating materiality to balance sheet accounts.

Accepted Answer

A) True 
 B)False

Question 14

Auditing standards define ________ as the magnitude of misstatements that individually,or when aggregated with other misstatements,could reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.

Accepted Answer

A) fraud 
B) inherent risk 
C) materiality 
D) significant 
A) fraud 
B) inherent risk 
C) materiality 
D) significant

Question 15

Certain types of misstatements are likely to be more important than other types to users,even if the dollar amounts are the same.Which of the following demonstrates this?

Accepted Answer

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

Question 16

Which of the following is a correct statement regarding analytical procedures?

Accepted Answer

A) A major strength in using industry ratios for auditing is the difference between the nature of the client's financial information and that of the firms making up the industry totals. 
B) Common-size financial statements display all items as a percentage change from a base year. 
C) In identifying areas of specific risk,the auditor is likely to focus on the liquidity activity ratios. 
D) In order to look for a misstatement in the allowance for bad debts,the auditor should divide gross sales by sales returns and allowances. 
A) A major strength in using industry ratios for auditing is the difference between the nature of the client's financial information and that of the firms making up the industry totals. 
B) Common-size financial statements display all items as a percentage change from a base year. 
C) In identifying areas of specific risk,the auditor is likely to focus on the liquidity activity ratios. 
D) In order to look for a misstatement in the allowance for bad debts,the auditor should divide gross sales by sales returns and allowances.

Question 17

When determining materiality,

Accepted Answer

A) the preliminary judgment about materiality can be increased,but not decreased during the audit. 
B) auditing standards provide specific materiality guidelines to practitioners. 
C) only one benchmark can be used. 
D) the application of guidelines requires considerable professional judgment. 
A) the preliminary judgment about materiality can be increased,but not decreased during the audit. 
B) auditing standards provide specific materiality guidelines to practitioners. 
C) only one benchmark can be used. 
D) the application of guidelines requires considerable professional judgment.

Question 18

A tour of the client's facilities can help the auditor assess physical safeguards over assets and interpret accounting data related to assets such as factory equipment.

Accepted Answer

A) True 
 B)False

Question 19

When may the auditor refer to a specialist in the audit report?

Accepted Answer

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

Question 20

When a successor auditor requests information from a company's previous auditor,and there are legal problems or disputes between the client and the predecessor auditor,the predecessor auditor's response to the new auditor may be limited to stating that no information will be provided.

Accepted Answer

A) True 
 B)False

Exam 8: Audit Planning and Analytical Procedures

Which is a liquidity activity ratio?

Operations are approaches followed by the entity to achieve organizational objectives.

In what order should the following steps occur? A. Set preliminary judgment of materiality and performance materiality. B. Understand the clients business and industry. C. Perform preliminary analytical procedures. D. Accept the client and perform initial audit planning.

An engagement letter sent to a publicly held audit client usually would not include a(n)

If an auditor assigns a tolerable misstatement of $1,000 to accounts payable,he or she would need to obtain more audit evidence for that account than if $100,000 had been assigned.

Which of the following is a reason that the auditors may change the preliminary judgment about materiality?

Material transactions between the client and the client's related parties must be disclosed in the auditor's report.

Amounts involving fraud are usually considered ________ important than unintentional errors of equal dollar amounts.

When using financial ratios,the most important comparisons are to those of previous years for the company and to industry averages or similar companies for the same year.

Discuss the essential activities involved in the initial planning of an audit.

When dealing with materiality,

Define the term "related party" and discuss why an auditor should identify the client's related parties early in the audit.

Both overstatements and understatements must be considered when allocating materiality to balance sheet accounts.

Auditing standards define ________ as the magnitude of misstatements that individually,or when aggregated with other misstatements,could reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.

Certain types of misstatements are likely to be more important than other types to users,even if the dollar amounts are the same.Which of the following demonstrates this?

Which of the following is a correct statement regarding analytical procedures?

When determining materiality,

A tour of the client's facilities can help the auditor assess physical safeguards over assets and interpret accounting data related to assets such as factory equipment.

When may the auditor refer to a specialist in the audit report?

When a successor auditor requests information from a company's previous auditor,and there are legal problems or disputes between the client and the predecessor auditor,the predecessor auditor's response to the new auditor may be limited to stating that no information will be provided.

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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