Question 1

When allocating materiality,most practitioners choose to allocate to

Accepted Answer

A) the income statement accounts because they are more important. 
B) the balance sheet accounts because most audits focus on the balance sheet. 
C) both balance sheet and income statement accounts because there could be errors on either. 
D) all of the financial statements because it is required by GAAS. 
A) the income statement accounts because they are more important. 
B) the balance sheet accounts because most audits focus on the balance sheet. 
C) both balance sheet and income statement accounts because there could be errors on either. 
D) all of the financial statements because it is required by GAAS.

Question 2

The auditor's preliminary judgment about materiality is the maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decisions of reasonable users.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is True regarding communications between predecessor and successor auditors?

Accepted Answer

A) The burden of initiating the communication rests with the predecessor. 
B) The predecessor's response can be limited to stating that no information will be provided. 
C) The predecessor should communicate with the successor only if the client is public. 
D) The predecessor auditor of a public company does not need permission from the client before communicating with the successor auditor. 
A) The burden of initiating the communication rests with the predecessor. 
B) The predecessor's response can be limited to stating that no information will be provided. 
C) The predecessor should communicate with the successor only if the client is public. 
D) The predecessor auditor of a public company does not need permission from the client before communicating with the successor auditor.

Question 4

Which is usually included in an engagement letter?

Accepted Answer

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

Question 5

Preliminary analytical procedures can help the auditor assess client business risk.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is the primary basis used to decide materiality for a profit-oriented entity?

Accepted Answer

A) net sales 
B) net assets 
C) net income before tax 
D) all of the above 
A) net sales 
B) net assets 
C) net income before tax 
D) all of the above

Question 7

When an auditor sets a low acceptable audit risk,it means that he wants to be more certain that the financial statements are not materially misstated.

Accepted Answer

A) True 
 B)False

Question 8

Which is usually included in an engagement letter?

Accepted Answer

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

Question 9

Smith,CPA,has requested permission to communicate with the predecessor auditor in order to review certain workpapers for high risk accounts for a new audit client.The new audit client's refusal to allow this communication to occur would impact Smith's decision concerning

Accepted Answer

A) the auditor's ability to design audit tests. 
B) possible scope exception due to lack of access. 
C) the desirability of accepting the prospective engagement. 
D) violation of the GAAP rules concerning consistency and comparability of financial information. 
A) the auditor's ability to design audit tests. 
B) possible scope exception due to lack of access. 
C) the desirability of accepting the prospective engagement. 
D) violation of the GAAP rules concerning consistency and comparability of financial information.

Question 10

Net assets are the most often used base for deciding materiality.

Accepted Answer

A) True 
 B)False

Question 11

An engagement letter establishes a clear understanding of the terms of the engagement between the client and the auditor.

Accepted Answer

A) True 
 B)False

Question 12

The written communication stating the auditor cannot guarantee that all acts of fraud will be discovered is found in the

Accepted Answer

A) engagement letter. 
B) representation letter. 
C) responsibility letter. 
D) client letter. 
A) engagement letter. 
B) representation letter. 
C) responsibility letter. 
D) client letter.

Question 13

An auditor should examine minutes of the board of directors' meetings

Accepted Answer

A) through the date of the financial statements. 
B) through the date of the audit report. 
C) only at the beginning of the audit. 
D) on a test basis. 
A) through the date of the financial statements. 
B) through the date of the audit report. 
C) only at the beginning of the audit. 
D) on a test basis.

Question 14

Auditors generally allocate the preliminary judgment about materiality to the:

Accepted Answer

A) balance sheet only. 
B) income statement only. 
C) income statement and balance sheet. 
D) statement of cash flows. 
A) balance sheet only. 
B) income statement only. 
C) income statement and balance sheet. 
D) statement of cash flows.

Question 15

To maximize audit efficiency,the auditor should allocate less tolerable misstatement to accounts that can be verified by using low-cost audit procedures,such as analytical procedures,than to accounts that are more costly to audit.

Accepted Answer

A) True 
 B)False

Question 16

Auditing standards ________ that the basis used to determine the preliminary judgment about materiality be documented in the audit files.

Accepted Answer

A) permit 
B) do not allow 
C) require 
D) strongly encourage 
A) permit 
B) do not allow 
C) require 
D) strongly encourage

Question 17

For prospective clients that have previously been audited by another CPA firm,the predecessor auditor must initiate the communication with the successor auditor.

Accepted Answer

A) True 
 B)False

Question 18

When evaluating the audit findings,the auditor should be satisfied that the

Accepted Answer

A) amount of known misstatement is documented in the management representation letter. 
B) estimate of the total known and likely misstatements is less than a material amount. 
C) estimate of the total likely misstatement includes sample error. 
D) amount of known misstatement is acknowledged and recorded by the client. 
A) amount of known misstatement is documented in the management representation letter. 
B) estimate of the total known and likely misstatements is less than a material amount. 
C) estimate of the total likely misstatement includes sample error. 
D) amount of known misstatement is acknowledged and recorded by the client.

Question 19

In order to obtain an understanding of the client's business,the audit firm will consider

Accepted Answer

A) inherent and control risk of the client. 
B) audit risk to the CPA firm. 
C) the client's business risk and the risk of material misstatements in the financial statements. 
D) the CPA firm's potential ongoing revenue from the audit client. 
A) inherent and control risk of the client. 
B) audit risk to the CPA firm. 
C) the client's business risk and the risk of material misstatements in the financial statements. 
D) the CPA firm's potential ongoing revenue from the audit client.

Question 20

All known related parties must be identified and included in the auditor's permanent files related to the client.

Accepted Answer

A) True 
 B)False

Exam 8: Audit Planning and Analytical Procedures

When allocating materiality,most practitioners choose to allocate to

The auditor's preliminary judgment about materiality is the maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decisions of reasonable users.

Which of the following statements is True regarding communications between predecessor and successor auditors?

Which is usually included in an engagement letter?

Preliminary analytical procedures can help the auditor assess client business risk.

Which of the following is the primary basis used to decide materiality for a profit-oriented entity?

When an auditor sets a low acceptable audit risk,it means that he wants to be more certain that the financial statements are not materially misstated.

Which is usually included in an engagement letter?

Smith,CPA,has requested permission to communicate with the predecessor auditor in order to review certain workpapers for high risk accounts for a new audit client.The new audit client's refusal to allow this communication to occur would impact Smith's decision concerning

Net assets are the most often used base for deciding materiality.

An engagement letter establishes a clear understanding of the terms of the engagement between the client and the auditor.

The written communication stating the auditor cannot guarantee that all acts of fraud will be discovered is found in the

An auditor should examine minutes of the board of directors' meetings

Auditors generally allocate the preliminary judgment about materiality to the:

To maximize audit efficiency,the auditor should allocate less tolerable misstatement to accounts that can be verified by using low-cost audit procedures,such as analytical procedures,than to accounts that are more costly to audit.

Auditing standards ________ that the basis used to determine the preliminary judgment about materiality be documented in the audit files.

For prospective clients that have previously been audited by another CPA firm,the predecessor auditor must initiate the communication with the successor auditor.

When evaluating the audit findings,the auditor should be satisfied that the

In order to obtain an understanding of the client's business,the audit firm will consider

All known related parties must be identified and included in the auditor's permanent files related to the client.

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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