Question 1

All of the following refer to the competence of the internal audit function except:

Accepted Answer

A) the party in the entity to which the internal audit function reports. 
B) the quality of internal audit documents and reports. 
C) professional certification. 
D) supervision and review of internal audit activities. 
A) the party in the entity to which the internal audit function reports. 
B) the quality of internal audit documents and reports. 
C) professional certification. 
D) supervision and review of internal audit activities. A

Question 2

The external auditor is required to make a number of important communications to the audit committee during or at the end of the audit engagement.

Accepted Answer

A) True 
 B)False  True

Question 3

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's:

Accepted Answer

A) engagement letter. 
B) audit working papers. 
C) engagement letter and audit working papers. 
D) It would not be typical to allow a review of either the engagement letter or the audit working papers. 
A) engagement letter. 
B) audit working papers. 
C) engagement letter and audit working papers. 
D) It would not be typical to allow a review of either the engagement letter or the audit working papers. B

Question 4

Name three Sarbanes-Oxley Act requirements and duties of the members of the audit committee of a public company.

Accepted Answer

Students must provide three of the follo

Question 5

An independent auditor finds that Holdaway Corporation occupies office space, at no charge, in an office building owned by a shareholder. This finding likely indicates the existence of:

Accepted Answer

A) management fraud. 
B) related party transactions. 
C) window dressing. 
D) weak internal control. 
A) management fraud. 
B) related party transactions. 
C) window dressing. 
D) weak internal control.

Question 6

Materiality significantly impacts the auditor's decisions about how much and what kind of evidence to gather.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?

Accepted Answer

A) The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques. 
B) Management's disregard of its responsibility to maintain an adequate control environment. 
C) The CPA's inability to determine whether related party transactions were consummated on terms equivalent to arm's-length transactions. 
D) Management's refusal to permit the CPA to perform substantive procedures before the year-end. 
A) The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques. 
B) Management's disregard of its responsibility to maintain an adequate control environment. 
C) The CPA's inability to determine whether related party transactions were consummated on terms equivalent to arm's-length transactions. 
D) Management's refusal to permit the CPA to perform substantive procedures before the year-end.

Question 8

The existence of a related party transaction may be indicated when another entity:

Accepted Answer

A) sells real estate to the corporation at a price that is comparable to its appraised value. 
B) absorbs expenses of the corporation under audit. 
C) borrows from the corporation at a rate of interest which equals the current market rate. 
D) lends to the corporation at a rate of interest which equals the current market rate. 
A) sells real estate to the corporation at a price that is comparable to its appraised value. 
B) absorbs expenses of the corporation under audit. 
C) borrows from the corporation at a rate of interest which equals the current market rate. 
D) lends to the corporation at a rate of interest which equals the current market rate.

Question 9

Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?

Accepted Answer

A) Analysis of balance sheet accounts. 
B) Analysis of income statement accounts. 
C) All matters of continuing accounting significance. 
D) Facts that might bear on management integrity. 
A) Analysis of balance sheet accounts. 
B) Analysis of income statement accounts. 
C) All matters of continuing accounting significance. 
D) Facts that might bear on management integrity.

Question 10

Which of the following is an example of a related party transaction?

Accepted Answer

A) An action is taken by the directors of Company A to provide additional compensation for vice presidents in charge of the principal business functions of Company A. 
B) A long-term agreement is made by Company A to provide merchandise or services to Company B, a long-time, friendly competitor. 
C) A short-term loan is granted to Company A by a bank that has a depositor who is a member of the board of directors of Company A. 
D) A nonmonetary exchange occurs whereby Company A exchanges property for similar property owned by Company B, an unconsolidated subsidiary of Company A. 
A) An action is taken by the directors of Company A to provide additional compensation for vice presidents in charge of the principal business functions of Company A. 
B) A long-term agreement is made by Company A to provide merchandise or services to Company B, a long-time, friendly competitor. 
C) A short-term loan is granted to Company A by a bank that has a depositor who is a member of the board of directors of Company A. 
D) A nonmonetary exchange occurs whereby Company A exchanges property for similar property owned by Company B, an unconsolidated subsidiary of Company A.

Question 11

In the planning stages of an audit, what information does an auditor gain through analytical procedures?

Accepted Answer

An auditor is required to apply analytic

Question 12

If the internal audit function is competent and objective, the auditor may generally rely on the work of an internal audit function in certain areas to reduce the amount of external audit work in these areas.

Accepted Answer

A) True 
 B)False

Question 13

An entity's financial statements were misstated over a period of years due to large amounts of revenue being recorded in journal entries that involved debits and credits to an illogical combination of accounts. The auditor could most likely have been alerted to this fraud by:

Accepted Answer

A) scanning the general journal for unusual entries. 
B) performing a revenue cutoff test at year-end. 
C) tracing a sample of journal entries to the general ledger. 
D) examining documentary evidence of sales returns and allowances recorded after year-end. 
A) scanning the general journal for unusual entries. 
B) performing a revenue cutoff test at year-end. 
C) tracing a sample of journal entries to the general ledger. 
D) examining documentary evidence of sales returns and allowances recorded after year-end.

Question 14

When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:

Accepted Answer

A) whether the predecessor's work should be utilized. 
B) whether, in the predecessor's opinion, the financial statements are materially correct. 
C) whether, in the predecessor's opinion, the company's internal controls have been satisfactory. 
D) whether the engagement should be accepted. 
A) whether the predecessor's work should be utilized. 
B) whether, in the predecessor's opinion, the financial statements are materially correct. 
C) whether, in the predecessor's opinion, the company's internal controls have been satisfactory. 
D) whether the engagement should be accepted.

Question 15

In the context of an audit of financial statements, substantive procedures are audit procedures that:

Accepted Answer

A) may be eliminated under certain conditions. 
B) are primarily designed to discover significant subsequent events. 
C) may be either tests of details of transactions, tests of details of account balances, or analytical procedures. 
D) will increase proportionately with an increase in the auditor's reliance on internal control. 
A) may be eliminated under certain conditions. 
B) are primarily designed to discover significant subsequent events. 
C) may be either tests of details of transactions, tests of details of account balances, or analytical procedures. 
D) will increase proportionately with an increase in the auditor's reliance on internal control.

Question 16

Which of the following audit procedures would be least likely to disclose the existence of related party transactions of a client during the period under audit?

Accepted Answer

A) Reading "conflict-of-interest" statements obtained by the client from its management. 
B) Scanning accounting records for large transactions at or just prior to the end of the period under audit. 
C) Reading minutes of the Board of Directors meetings for authorization or discussion of material transactions. 
D) Confirming purchases and sales transactions with the vendors and/or customers involved. 
A) Reading "conflict-of-interest" statements obtained by the client from its management. 
B) Scanning accounting records for large transactions at or just prior to the end of the period under audit. 
C) Reading minutes of the Board of Directors meetings for authorization or discussion of material transactions. 
D) Confirming purchases and sales transactions with the vendors and/or customers involved.

Question 17

The audit client's board of directors and audit committee refused to take any action with respect to an immaterial illegal act which was brought to their attention by the auditor. Because of their failure to act, the auditor withdrew from the engagement. The auditor's decision to withdraw was primarily due to doubts concerning:

Accepted Answer

A) adequate financial statement disclosures. 
B) compliance with the statutory laws and regulations. 
C) scope limitations resulting from their inaction. 
D) the integrity of management. 
A) adequate financial statement disclosures. 
B) compliance with the statutory laws and regulations. 
C) scope limitations resulting from their inaction. 
D) the integrity of management.

Question 18

Name and describe three supervisory activities that should be performed by the engagement partner and other engagement team members performing supervisory activities.

Accepted Answer

Student's examples may vary:
Inform enga

Question 19

Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor's working papers. The prospective client's refusal to permit this will bear directly on Hawkins' decision concerning the:

Accepted Answer

A) adequacy of the preplanned audit program. 
B) ability to establish consistency in application of accounting principles between years. 
C) apparent scope limitation. 
D) integrity of management. 
A) adequacy of the preplanned audit program. 
B) ability to establish consistency in application of accounting principles between years. 
C) apparent scope limitation. 
D) integrity of management.

Question 20

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

Accepted Answer

A) Potential for fraud. 
B) The company is close to violating loan covenants. 
C) Firm policy sets materiality at 4% of pretax income. 
D) A small misstatement would interrupt an earnings trend. 
A) Potential for fraud. 
B) The company is close to violating loan covenants. 
C) Firm policy sets materiality at 4% of pretax income. 
D) A small misstatement would interrupt an earnings trend.

All of the following refer to the competence of the internal audit function except:

The external auditor is required to make a number of important communications to the audit committee during or at the end of the audit engagement.

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's:

Name three Sarbanes-Oxley Act requirements and duties of the members of the audit committee of a public company.

An independent auditor finds that Holdaway Corporation occupies office space, at no charge, in an office building owned by a shareholder. This finding likely indicates the existence of:

Materiality significantly impacts the auditor's decisions about how much and what kind of evidence to gather.

Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?

The existence of a related party transaction may be indicated when another entity:

Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?

Which of the following is an example of a related party transaction?

In the planning stages of an audit, what information does an auditor gain through analytical procedures?

If the internal audit function is competent and objective, the auditor may generally rely on the work of an internal audit function in certain areas to reduce the amount of external audit work in these areas.

An entity's financial statements were misstated over a period of years due to large amounts of revenue being recorded in journal entries that involved debits and credits to an illogical combination of accounts. The auditor could most likely have been alerted to this fraud by:

When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:

In the context of an audit of financial statements, substantive procedures are audit procedures that:

Which of the following audit procedures would be least likely to disclose the existence of related party transactions of a client during the period under audit?

Name and describe three supervisory activities that should be performed by the engagement partner and other engagement team members performing supervisory activities.

Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor's working papers. The prospective client's refusal to permit this will bear directly on Hawkins' decision concerning the:

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 3: Audit Planning, Types of Audit Tests, and Materiality

All of the following refer to the competence of the internal audit function except:

The external auditor is required to make a number of important communications to the audit committee during or at the end of the audit engagement.

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's:

Name three Sarbanes-Oxley Act requirements and duties of the members of the audit committee of a public company.

An independent auditor finds that Holdaway Corporation occupies office space, at no charge, in an office building owned by a shareholder. This finding likely indicates the existence of:

Materiality significantly impacts the auditor's decisions about how much and what kind of evidence to gather.

Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?

The existence of a related party transaction may be indicated when another entity:

Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?

Which of the following is an example of a related party transaction?

In the planning stages of an audit, what information does an auditor gain through analytical procedures?

If the internal audit function is competent and objective, the auditor may generally rely on the work of an internal audit function in certain areas to reduce the amount of external audit work in these areas.

An entity's financial statements were misstated over a period of years due to large amounts of revenue being recorded in journal entries that involved debits and credits to an illogical combination of accounts. The auditor could most likely have been alerted to this fraud by:

When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:

In the context of an audit of financial statements, substantive procedures are audit procedures that:

Which of the following audit procedures would be least likely to disclose the existence of related party transactions of a client during the period under audit?

Name and describe three supervisory activities that should be performed by the engagement partner and other engagement team members performing supervisory activities.

Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor's working papers. The prospective client's refusal to permit this will bear directly on Hawkins' decision concerning the:

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters