Question 1

Initial audit planning involves four matters.Which of the following is not one of these?

Accepted Answer

A) Develop an overall audit strategy. 
B) Request that bank balances be confirmed. 
C) Schedule engagement staff and audit specialists. 
D) Identify the client's reason for the audit. 
A) Develop an overall audit strategy. 
B) Request that bank balances be confirmed. 
C) Schedule engagement staff and audit specialists. 
D) Identify the client's reason for the audit.

Question 2

Net income before taxes is the normal base used to determine materiality for a not-for-profit organization.

Accepted Answer

A) True 
 B)False

Question 3

What are three factors that have increased the importance of obtaining an understanding of a client's business and industry?
 How can an auditor obtain this understanding?

Accepted Answer

Factors that have increased the importan

Question 4

Which is usually included in the engagement letter?

Accepted Answer

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

Question 5

Which of the following statements is not correct?

Accepted Answer

A) Materiality is a relative rather than an absolute concept. 
B) The most important base used as the criterion for deciding materiality is total assets. 
C) Qualitative factors as well as quantitative factors affect materiality. 
D) Given equal dollar amounts,frauds are usually considered more important than errors. 
A) Materiality is a relative rather than an absolute concept. 
B) The most important base used as the criterion for deciding materiality is total assets. 
C) Qualitative factors as well as quantitative factors affect materiality. 
D) Given equal dollar amounts,frauds are usually considered more important than errors.

Question 6

One of the purposes of an engagement letter is to avoid misunderstandings with the client.This is important for

Accepted Answer

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

Question 7

Management's philosophy and operating style influence the risk of material misstatements in the financial statements.

Accepted Answer

A) True 
 B)False

Question 8

Most auditors assess the risk of material misstatement as high for related parties and related-party transactions because

Accepted Answer

A) of the unique classification of related-party transactions required on the balance sheet. 
B) of the lack of independence between the parties. 
C) of the unique classification of related-party transactions required on the income statement. 
D) it is required by generally accepted accounting principles. 
A) of the unique classification of related-party transactions required on the balance sheet. 
B) of the lack of independence between the parties. 
C) of the unique classification of related-party transactions required on the income statement. 
D) it is required by generally accepted accounting principles.

Question 9

Audit standards require the auditor to consider the combined amount of misstatement early in the audit.This is known as preliminary materiality judgment.List and discuss the three main factors that affect an auditor's preliminary judgment about materiality.

Accepted Answer

The three main factors that affect an au

Question 10

Materiality does not depend on the decisions of users who rely on the statements to make the decisions.

Accepted Answer

A) True 
 B)False

Question 11

Explain why it is necessary to allocate the preliminary judgment about materiality to individual accounts (segments)in the financial statements.Also explain why allocating to balance sheet accounts is more common than allocating to income statement accounts.

Accepted Answer

Allocating the preliminary judgment abou

Question 12

A predecessor auditor who has been contacted by a successor auditor for information about the client does not have to obtain permission from the former client before providing any confidential information to the successor auditor because the confidentiality requirement does not extend to former clients.

Accepted Answer

A) True 
 B)False

Question 13

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the

Accepted Answer

A) inherent risk. 
B) acceptable audit risk. 
C) statistical risk. 
D) financial risk. 
A) inherent risk. 
B) acceptable audit risk. 
C) statistical risk. 
D) financial risk.

Question 14

The preliminary judgment on materiality is compared to the total estimated misstatement amount to determine if an account balance is materially misstated.

Accepted Answer

A) True 
 B)False

Question 15

The lower the dollar amount of the preliminary judgment,the more audit evidence is required.

Accepted Answer

A) True 
 B)False

Question 16

________ misstatements are those where the auditor can determine the amount of the misstatement in the account.

Accepted Answer

A) Potential 
B) Likely 
C) Known 
D) Projected 
A) Potential 
B) Likely 
C) Known 
D) Projected

Question 17

Which of the following statements is false?

Accepted Answer

A) Either an overstatement of an asset account or an understatement of a liability account would have the same effect on the income statement. 
B) A misclassification in the balance sheet will have no effect on operating income. 
C) Either an overstatement of an asset account or an overstatement of a liability account would have the same effect on the income statement. 
D) Either an understatement of an asset account or an overstatement of a liability account would have the same effect on the income statement. 
A) Either an overstatement of an asset account or an understatement of a liability account would have the same effect on the income statement. 
B) A misclassification in the balance sheet will have no effect on operating income. 
C) Either an overstatement of an asset account or an overstatement of a liability account would have the same effect on the income statement. 
D) Either an understatement of an asset account or an overstatement of a liability account would have the same effect on the income statement.

Question 18

Discuss several reasons why an auditor may not wish to continue a relationship with an existing audit client.

Accepted Answer

There are a number of reasons an auditor

Question 19

A written understanding detailing what the auditor expects from the client in performing an audit will normally be expressed in the

Accepted Answer

A) management letter requested by the auditor. 
B) engagement letter. 
C) audit Plan. 
D) audit Strategy for the client. 
A) management letter requested by the auditor. 
B) engagement letter. 
C) audit Plan. 
D) audit Strategy for the client.

Question 20

For public companies,the ________ is responsible for hiring the auditor as required by the Sarbanes-Oxley Act.

Accepted Answer

A) client's management 
B) client's chief executive officer 
C) client's chief financial officer 
D) client's audit committee 
A) client's management 
B) client's chief executive officer 
C) client's chief financial officer 
D) client's audit committee

Exam 8: Audit Planning and Analytical Procedures

Initial audit planning involves four matters.Which of the following is not one of these?

Net income before taxes is the normal base used to determine materiality for a not-for-profit organization.

What are three factors that have increased the importance of obtaining an understanding of a client's business and industry? How can an auditor obtain this understanding?

Which is usually included in the engagement letter?

Which of the following statements is not correct?

One of the purposes of an engagement letter is to avoid misunderstandings with the client.This is important for

Management's philosophy and operating style influence the risk of material misstatements in the financial statements.

Most auditors assess the risk of material misstatement as high for related parties and related-party transactions because

Audit standards require the auditor to consider the combined amount of misstatement early in the audit.This is known as preliminary materiality judgment.List and discuss the three main factors that affect an auditor's preliminary judgment about materiality.

Materiality does not depend on the decisions of users who rely on the statements to make the decisions.

Explain why it is necessary to allocate the preliminary judgment about materiality to individual accounts (segments)in the financial statements.Also explain why allocating to balance sheet accounts is more common than allocating to income statement accounts.

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the

The preliminary judgment on materiality is compared to the total estimated misstatement amount to determine if an account balance is materially misstated.

The lower the dollar amount of the preliminary judgment,the more audit evidence is required.

________ misstatements are those where the auditor can determine the amount of the misstatement in the account.

Which of the following statements is false?

Discuss several reasons why an auditor may not wish to continue a relationship with an existing audit client.

A written understanding detailing what the auditor expects from the client in performing an audit will normally be expressed in the

For public companies,the ________ is responsible for hiring the auditor as required by the Sarbanes-Oxley Act.

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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