Question 1

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 2

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

Accepted Answer

The purpose of an audit engagement lette

Question 3

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 4

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 5

The auditor determines that Mathews 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) 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) 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.

Question 6

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 7

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 8

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

Accepted Answer

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

Question 9

An engagement letter can affect the CPA firm's legal responsibilities to the client, but does not affect responsibility to external users of audited financial statements.

Accepted Answer

A) True 
 B)False

Question 10

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 audit fee. 
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 audit fee.

Question 11

Which is usually included in an engagement letter?

Accepted Answer

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

Question 12

As acceptable audit risk is decreased, the likely cost of conducting an audit increases.

Accepted Answer

A) True 
 B)False

Question 13

Whenever an auditor compares client data to client-prepared budgets, there are two special concerns.Indicate if the two items below are concerns.

Accepted Answer

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

Question 14

A 100 % audit risk is complete certainty.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is most correct with respect to the use of analytical procedures?

Accepted Answer

A) Analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption. 
B) Analytical procedures must be used throughout the audit. 
C) Analytical procedures used in the testing phase of the audit are primarily used to direct an auditor's attention so that the auditor's understanding of the business is improved. 
D) Analytical procedures are performed by studying plausible relationships between financial and nonfinancial data. 
A) Analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption. 
B) Analytical procedures must be used throughout the audit. 
C) Analytical procedures used in the testing phase of the audit are primarily used to direct an auditor's attention so that the auditor's understanding of the business is improved. 
D) Analytical procedures are performed by studying plausible relationships between financial and nonfinancial data.

Question 16

The most widely used profitability ratio is return on assets.

Accepted Answer

A) True 
 B)False

Question 17

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 18

A major consideration in audit staffing is the need for continuity from year to year.

Accepted Answer

A) True 
 B)False

Question 19

Many inherent risks are common to all clients in certain industries.

Accepted Answer

A) True 
 B)False

Question 20

During audit planning, the auditor uses analytical procedures primarily to:

Accepted Answer

A) identify weaknesses in internal control. 
B) determine if the company's financial statements appear reasonable and are free of material misstatement. 
C) determine the correspondence of the company's financial statements to the valuation and accuracy audit objectives. 
D) determine the nature, extent, and timing of audit procedures. 
A) identify weaknesses in internal control. 
B) determine if the company's financial statements appear reasonable and are free of material misstatement. 
C) determine the correspondence of the company's financial statements to the valuation and accuracy audit objectives. 
D) determine the nature, extent, and timing of audit procedures.

Exam 8: Audit Planning and Analytical Procedures

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

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

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

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

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.

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.

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

An engagement letter can affect the CPA firm's legal responsibilities to the client, but does not affect responsibility to external users of audited financial statements.

When dealing with audit risk:

Which is usually included in an engagement letter?

As acceptable audit risk is decreased, the likely cost of conducting an audit increases.

Whenever an auditor compares client data to client-prepared budgets, there are two special concerns.Indicate if the two items below are concerns.

A 100 % audit risk is complete certainty.

Which of the following is most correct with respect to the use of analytical procedures?

The most widely used profitability ratio is return on assets.

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:

A major consideration in audit staffing is the need for continuity from year to year.

Many inherent risks are common to all clients in certain industries.

During audit planning, the auditor uses analytical procedures primarily to:

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

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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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