Question 1

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 2

Which of the following would not be classified as an analytical procedure?

Accepted Answer

A) Benchmarking the company's profitability ratios against others in the industry 
B) Variance analysis of actual versus budgeted amounts for production 
C) Reperforming the client's depreciation expense using the client's accounting policies for capital expenditures made during the year 
D) Reconciling fixed asset dispositions with the fixed asset ledger 
A) Benchmarking the company's profitability ratios against others in the industry 
B) Variance analysis of actual versus budgeted amounts for production 
C) Reperforming the client's depreciation expense using the client's accounting policies for capital expenditures made during the year 
D) Reconciling fixed asset dispositions with the fixed asset ledger

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

Define business risk.List several factors that may impact the auditor's assessment of business risk.

Accepted Answer

Business risk is the risk that a company

Question 6

Sarbanes-Oxley encourages management to certify that it has informed the auditor and audit committee of any significant deficiencies in internal control.

Accepted Answer

A) True 
 B)False

Question 7

When selecting staff for the audit engagement:

Accepted Answer

A) only staff members who are CPAs should be assigned to the audit. 
B) only managers and above need to have appropriate competence and capabilities to perform the audit. 
C) continuity of staff members from year to year should not be a factor. 
D) staff assigned to the audit must be knowledgeable about the client's industry. 
A) only staff members who are CPAs should be assigned to the audit. 
B) only managers and above need to have appropriate competence and capabilities to perform the audit. 
C) continuity of staff members from year to year should not be a factor. 
D) staff assigned to the audit must be knowledgeable about the client's industry.

Question 8

When an auditor decides there is higher inherent risk for an account, one potential effect is that more audit evidence will be required for that account.

Accepted Answer

A) True 
 B)False

Question 9

Related party:

Accepted Answer

A) transactions must be disclosed in the footnotes even if the amounts are immaterial. 
B) disclosures include the nature of the related party relationship and a description of the transaction. 
C) transactions are considered arms-length transactions. 
D) disclosures are required only for public companies. 
A) transactions must be disclosed in the footnotes even if the amounts are immaterial. 
B) disclosures include the nature of the related party relationship and a description of the transaction. 
C) transactions are considered arms-length transactions. 
D) disclosures are required only for public companies.

Question 10

Most auditors assess inherent risk 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 11

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

Accepted Answer

There are four essential activities invo

Question 12

Which of the following best describes the corporate minutes of an entity?

Accepted Answer

A) Official record of the meetings of the board of directors and the stockholders 
B) Unofficial record of the meeting of the board of directors 
C) Official record of management meeting with investors and creditors of the company 
D) Unofficial record of the board of directors meetings 
A) Official record of the meetings of the board of directors and the stockholders 
B) Unofficial record of the meeting of the board of directors 
C) Official record of management meeting with investors and creditors of the company 
D) Unofficial record of the board of directors meetings

Question 13

Ordinarily, the auditor should review corporate minutes during the later stages of an audit.

Accepted Answer

A) True 
 B)False

Question 14

For prospective clients that have previously been audited by another CPA firm, the predecessor auditor is required to communicate with the successor auditor.

Accepted Answer

A) True 
 B)False

Question 15

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 16

What documents do auditors routinely obtain to aid in their understanding of a client's governance system?
 Briefly discuss each of these documents.

Accepted Answer

Auditors commonly obtain organizational

Question 17

A written understanding detailing what the auditors will do in determining if the financial statements are fair representations of the company's financial statements and 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 18

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:

Accepted Answer

A) engage financial experts familiar with the nature of the business entity. 
B) obtain a knowledge of matters that relate to the nature of the entity's business. 
C) refer a substantial portion of the audit to another CPA who will act as the principal auditor. 
D) first inform management that an unqualified opinion cannot be issued. 
A) engage financial experts familiar with the nature of the business entity. 
B) obtain a knowledge of matters that relate to the nature of the entity's business. 
C) refer a substantial portion of the audit to another CPA who will act as the principal auditor. 
D) first inform management that an unqualified opinion cannot be issued.

Question 19

The purpose of the requirement in having communication between the predecessor and successor auditors is to:

Accepted Answer

A) allow the predecessor to disclose information which would otherwise be confidential. 
B) help the successor auditor to evaluate whether to accept the engagement. 
C) help the client by facilitating the change of auditors. 
D) ensure the predecessor collects all unpaid fees prior to a change in auditor. 
A) allow the predecessor to disclose information which would otherwise be confidential. 
B) help the successor auditor to evaluate whether to accept the engagement. 
C) help the client by facilitating the change of auditors. 
D) ensure the predecessor collects all unpaid fees prior to a change in auditor.

Question 20

The predecessor auditor is required to respond to the request of the successor auditor for information, but the response can be limited to stating that no information will be provided when:

Accepted Answer

A) the predecessor auditor has poor relations with the successor auditor. 
B) the client is dissatisfied with the predecessor's work. 
C) there are actual or potential legal problems between the client and the predecessor. 
D) the predecessor believes that the client lacks integrity. 
A) the predecessor auditor has poor relations with the successor auditor. 
B) the client is dissatisfied with the predecessor's work. 
C) there are actual or potential legal problems between the client and the predecessor. 
D) the predecessor believes that the client lacks integrity.

Exam 8: Audit Planning and Analytical Procedures

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

Which of the following would not be classified as an analytical procedure?

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

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

Define business risk.List several factors that may impact the auditor's assessment of business risk.

Sarbanes-Oxley encourages management to certify that it has informed the auditor and audit committee of any significant deficiencies in internal control.

When selecting staff for the audit engagement:

When an auditor decides there is higher inherent risk for an account, one potential effect is that more audit evidence will be required for that account.

Related party:

Most auditors assess inherent risk as high for related parties and related-party transactions because:

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

Which of the following best describes the corporate minutes of an entity?

Ordinarily, the auditor should review corporate minutes during the later stages of an audit.

For prospective clients that have previously been audited by another CPA firm, the predecessor auditor is required to communicate with the successor auditor.

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

What documents do auditors routinely obtain to aid in their understanding of a client's governance system? Briefly discuss each of these documents.

A written understanding detailing what the auditors will do in determining if the financial statements are fair representations of the company's financial statements and what the auditor expects from the client in performing an audit will normally be expressed in the:

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:

The purpose of the requirement in having communication between the predecessor and successor auditors is to:

The predecessor auditor is required to respond to the request of the successor auditor for information, but the response can be limited to stating that no information will be provided when:

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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