Question 1

In making client acceptance decisions, 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) 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) CPA Firm's potential ongoing revenue from the audit client.

Question 2

Analytical procedures:

Accepted Answer

A) are not a type of audit evidence. 
B) are not required during the completion phase of the audit. 
C) performed during the planning phase of the audit are used as a substantive test in support of account balances. 
D) performed in the completion phase serve as a final review for material misstatements or financial problems. 
A) are not a type of audit evidence. 
B) are not required during the completion phase of the audit. 
C) performed during the planning phase of the audit are used as a substantive test in support of account balances. 
D) performed in the completion phase serve as a final review for material misstatements or financial problems.

Question 3

Which is usually included in the engagement letter?

Accepted Answer

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

Question 4

Discuss the factors an auditor should consider before accepting a company as an audit client.

Accepted Answer

The auditor should investigate and consi

Question 5

Discuss the four primary purposes of analytical procedures performed during the planning phase of an audit.

Accepted Answer

The four primary purposes of preliminary

Question 6

Which is usually included in an engagement letter?

Accepted Answer

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

Question 7

An auditor must evaluate a specialist's professional qualifications and understand the objectives of the specialist's work.

Accepted Answer

A) True 
 B)False

Question 8

Because of audit risk, some CPA firms now refuse any new clients in certain high-risk industries.

Accepted Answer

A) True 
 B)False

Question 9

Discuss four of the matters that should be specified in an engagement letter.

Accepted Answer

Matters that should be specified in the

Question 10

When a successor auditor contacts a company's previous auditor, the predecessor auditor is required to respond fully and without limit to the request for information.

Accepted Answer

A) True 
 B)False

Question 11

The preliminary audit strategy:

Accepted Answer

A) is set before the auditor understands the client's reasons for the audit. 
B) guides the development of the audit plan. 
C) is determined after the engagement staffing is set. 
D) is the detailed steps to be followed for the substantive audit tests. 
A) is set before the auditor understands the client's reasons for the audit. 
B) guides the development of the audit plan. 
C) is determined after the engagement staffing is set. 
D) is the detailed steps to be followed for the substantive audit tests.

Question 12

Obtaining sufficient appropriate evidence is essential if the CPA firm is to minimize legal liability.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

Transactions with related parties must be disclosed in the financial statements if they are deemed to be material.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would most likely not be classified as a related-party transaction?

Accepted Answer

A) An advance of one week's salary to an employee 
B) Sales of merchandise between affiliated companies 
C) Loans or credit sales to the principal owner of the client company 
D) Exchanges of equipment between two companies owned by the same person 
A) An advance of one week's salary to an employee 
B) Sales of merchandise between affiliated companies 
C) Loans or credit sales to the principal owner of the client company 
D) Exchanges of equipment between two companies owned by the same person

Question 17

Auditors perform preliminary analytical procedures to better understand the client's business and to assess client business risk.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Which of the following is not a primary reason for obtaining a good understanding of the client's industry and external environment?

Accepted Answer

A) Risk associated with a specific industry may affect the auditor's assessment of client business risk. 
B) Risk associated with a specific industry may affect the auditor's assessment of acceptable audit risk. 
C) Risk associated with a specific industry may affect the auditor's assessment of acceptable control risk. 
D) Many control risks are common to all clients in certain industries. 
A) Risk associated with a specific industry may affect the auditor's assessment of client business risk. 
B) Risk associated with a specific industry may affect the auditor's assessment of acceptable audit risk. 
C) Risk associated with a specific industry may affect the auditor's assessment of acceptable control risk. 
D) Many control risks are common to all clients in certain industries.

Question 20

An engagement letter sent to a publicly held audit client usually would not include a:

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.

Exam 8: Audit Planning and Analytical Procedures

In making client acceptance decisions, the audit firm will consider:

Analytical procedures:

Which is usually included in the engagement letter?

Discuss the factors an auditor should consider before accepting a company as an audit client.

Discuss the four primary purposes of analytical procedures performed during the planning phase of an audit.

Which is usually included in an engagement letter?

An auditor must evaluate a specialist's professional qualifications and understand the objectives of the specialist's work.

Because of audit risk, some CPA firms now refuse any new clients in certain high-risk industries.

Discuss four of the matters that should be specified in an engagement letter.

When a successor auditor contacts a company's previous auditor, the predecessor auditor is required to respond fully and without limit to the request for information.

The preliminary audit strategy:

Obtaining sufficient appropriate evidence is essential if the CPA firm is to minimize legal liability.

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?

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

Transactions with related parties must be disclosed in the financial statements if they are deemed to be material.

Which of the following would most likely not be classified as a related-party transaction?

Auditors perform preliminary analytical procedures to better understand the client's business and to assess client business risk.

Which is a liquidity activity ratio?

Which of the following is not a primary reason for obtaining a good understanding of the client's industry and external environment?

An engagement letter sent to a publicly held audit client usually would not include a:

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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