Question 1

An independent auditor might consider the procedures performed by the internal audit function because:

Accepted Answer

A) they are employees whose work must be reviewed during substantive testing. 
B) they are employees whose work might be relied upon. 
C) their work impacts the cost/benefit tradeoff in evaluating inherent limitations. 
D) their degree of independence may be inferred by the nature of their work. 
A) they are employees whose work must be reviewed during substantive testing. 
B) they are employees whose work might be relied upon. 
C) their work impacts the cost/benefit tradeoff in evaluating inherent limitations. 
D) their degree of independence may be inferred by the nature of their work.

Question 2

Cart and Blanche, a regional accounting firm is determining whether it wants to accept a new client, Ivy Photos. Ivy Photos is currently a privately held photography studio operating 24 studios in several states, but the company's management is planning an Initial Public Offering in the near future. This is the company's first audit. What steps should Cart and Blanche take in evaluating this new client?

Accepted Answer

To evaluate the client, the auditors sho

Question 3

If the prospective client refuses to allow the predecessor auditor to communicate with the successor auditor, the successor auditor should have reservations about accepting the client.

Accepted Answer

A) True 
 B)False

Question 4

In assessing whether to accept a client for an audit engagement, a CPA should consider:

Accepted Answer

A) the current financial health of the prospective client. 
B) the integrity of management. 
C) the CPA's overall engagement risk. 
D) All of these choices are correct. 
A) the current financial health of the prospective client. 
B) the integrity of management. 
C) the CPA's overall engagement risk. 
D) All of these choices are correct.

Question 5

Materiality is based only on a quantitative analysis of the financial statements.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following arranges the general types of audit tests in the order they are normally performed in an audit?

Accepted Answer

A) Substantive procedures, tests of controls, and risk assessment procedures. 
B) Substantive procedures, risk assessment procedures, and tests of controls. 
C) Risk assessment procedures, tests of controls, and substantive procedures. 
D) Risk assessment procedures, substantive procedures, and tests of controls. 
A) Substantive procedures, tests of controls, and risk assessment procedures. 
B) Substantive procedures, risk assessment procedures, and tests of controls. 
C) Risk assessment procedures, tests of controls, and substantive procedures. 
D) Risk assessment procedures, substantive procedures, and tests of controls.

Question 7

To emphasize auditor independence from management, publicly traded corporations are required to:

Accepted Answer

A) appoint a partner of the CPA firm conducting the examination to the corporation's audit committee. 
B) establish a policy of discouraging social contact between employees of the corporation and the independent auditors. 
C) request that a representative of the independent auditor be on hand at the annual stockholders' meeting. 
D) have the independent auditor report to an audit committee of independent members of the board of directors. 
A) appoint a partner of the CPA firm conducting the examination to the corporation's audit committee. 
B) establish a policy of discouraging social contact between employees of the corporation and the independent auditors. 
C) request that a representative of the independent auditor be on hand at the annual stockholders' meeting. 
D) have the independent auditor report to an audit committee of independent members of the board of directors.

Question 8

How would an auditor identify related parties and what is the importance of doing so?

Accepted Answer

Transactions between an entity and any r

Question 9

An auditor who discovers that a client's employees paid small bribes to municipal officials most likely would withdraw from the engagement if:

Accepted Answer

A) the payments violated the client's policies regarding the prevention of illegal acts. 
B) the client receives financial assistance from a federal government agency. 
C) documentation that is necessary to prove that the bribes were paid does not exist. 
D) management fails to take the appropriate remedial action. 
A) the payments violated the client's policies regarding the prevention of illegal acts. 
B) the client receives financial assistance from a federal government agency. 
C) documentation that is necessary to prove that the bribes were paid does not exist. 
D) management fails to take the appropriate remedial action.

Question 10

During the initial planning phase of an audit, a CPA most likely would:

Accepted Answer

A) identify specific internal control activities that are likely to prevent fraud. 
B) evaluate the reasonableness of the client's accounting estimates. 
C) discuss the timing of the audit procedures with the client's management. 
D) inquire of the client's attorney as to any unrecorded claims. 
A) identify specific internal control activities that are likely to prevent fraud. 
B) evaluate the reasonableness of the client's accounting estimates. 
C) discuss the timing of the audit procedures with the client's management. 
D) inquire of the client's attorney as to any unrecorded claims.

Question 11

Which of the following statements is not correct about materiality?

Accepted Answer

A) The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important. 
B) An auditor considers materiality for the aggregate level of misstatements that could be material to any one of the financial statements individually. 
C) Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. 
D) An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements. 
A) The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important. 
B) An auditor considers materiality for the aggregate level of misstatements that could be material to any one of the financial statements individually. 
C) Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. 
D) An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements.

Question 12

Which of the following is not a concern as to whether a misstatement is qualitatively material?

Accepted Answer

A) The misstatement hides a failure to meet analysts' expectations. 
B) The misstatement is less than 5% of pretax income. 
C) The misstatement increases management's compensation. 
D) The misstatement changes a small amount of profit to a small reported loss. 
A) The misstatement hides a failure to meet analysts' expectations. 
B) The misstatement is less than 5% of pretax income. 
C) The misstatement increases management's compensation. 
D) The misstatement changes a small amount of profit to a small reported loss.

Question 13

Which of the following procedures would an auditor most likely include in the initial planning of an examination of financial statements?

Accepted Answer

A) Assess the need for the use of specialists in the audit. 
B) Inquiring of the client's attorney as to any claims that are likely to be asserted. 
C) Perform detailed testing of the individual financial statement accounts. 
D) Determining whether necessary internal controls procedures are being applied as prescribed. 
A) Assess the need for the use of specialists in the audit. 
B) Inquiring of the client's attorney as to any claims that are likely to be asserted. 
C) Perform detailed testing of the individual financial statement accounts. 
D) Determining whether necessary internal controls procedures are being applied as prescribed.

Question 14

An auditor is required to establish an understanding with a client regarding the responsibilities for each engagement. This understanding generally includes:

Accepted Answer

A) management's responsibility to guarantee that there are no material misstatements due to fraud. 
B) the auditor's responsibility to plan and perform the audit to provide reasonable, but not absolute, assurance of detecting material errors or fraud. 
C) management's responsibility for providing the auditor with an assessment of the risk of material misstatement due to fraud. 
D) the auditor's responsibility for the fairness of the financial statements. 
A) management's responsibility to guarantee that there are no material misstatements due to fraud. 
B) the auditor's responsibility to plan and perform the audit to provide reasonable, but not absolute, assurance of detecting material errors or fraud. 
C) management's responsibility for providing the auditor with an assessment of the risk of material misstatement due to fraud. 
D) the auditor's responsibility for the fairness of the financial statements.

Question 15

Tolerable misstatement is:

Accepted Answer

A) materiality allocated to an assertion. 
B) materiality for the balance sheet as a whole. 
C) materiality for the income statement as a whole. 
D) materiality allocated to a specific account. 
A) materiality allocated to an assertion. 
B) materiality for the balance sheet as a whole. 
C) materiality for the income statement as a whole. 
D) materiality allocated to a specific account.

Question 16

The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants:

Accepted Answer

A) that immaterial fraud is not to be reported to the client's audit committee. 
B) how the results of various auditing procedures performed by the assistants should be evaluated. 
C) how the overall audit strategy will allow the firm to reach a sufficiently low level of audit risk. 
D) how overall materiality was selected. 
A) that immaterial fraud is not to be reported to the client's audit committee. 
B) how the results of various auditing procedures performed by the assistants should be evaluated. 
C) how the overall audit strategy will allow the firm to reach a sufficiently low level of audit risk. 
D) how overall materiality was selected.

Question 17

An auditor obtains knowledge about a new client's business and its industry in order to:

Accepted Answer

A) make constructive suggestions concerning improvements to the client's internal control. 
B) develop an attitude of professional skepticism concerning management's financial statement assertions. 
C) evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. 
D) understand the events and transactions that may have an effect on the client's financial statements. 
A) make constructive suggestions concerning improvements to the client's internal control. 
B) develop an attitude of professional skepticism concerning management's financial statement assertions. 
C) evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. 
D) understand the events and transactions that may have an effect on the client's financial statements.

Question 18

With few exceptions, the Code of Professional Conduct does not allow an auditor to disclose confidential client information without the client's consent.

Accepted Answer

A) True 
 B)False

Question 19

When the prospective client has previously been audited, auditing standards require that the successor auditor make certain inquiries of the predecessor auditor before accepting the engagement.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?

Accepted Answer

A) Perform detailed testing of the individual balance sheet accounts. 
B) Examining documents to detect illegal acts having a material effect on the financial statements. 
C) Considering whether the client's accounting estimates are reasonable in the circumstances. 
D) Determining the extent of involvement of the client's internal audit function. 
A) Perform detailed testing of the individual balance sheet accounts. 
B) Examining documents to detect illegal acts having a material effect on the financial statements. 
C) Considering whether the client's accounting estimates are reasonable in the circumstances. 
D) Determining the extent of involvement of the client's internal audit function.

An independent auditor might consider the procedures performed by the internal audit function because:

If the prospective client refuses to allow the predecessor auditor to communicate with the successor auditor, the successor auditor should have reservations about accepting the client.

In assessing whether to accept a client for an audit engagement, a CPA should consider:

Materiality is based only on a quantitative analysis of the financial statements.

Which of the following arranges the general types of audit tests in the order they are normally performed in an audit?

To emphasize auditor independence from management, publicly traded corporations are required to:

How would an auditor identify related parties and what is the importance of doing so?

An auditor who discovers that a client's employees paid small bribes to municipal officials most likely would withdraw from the engagement if:

During the initial planning phase of an audit, a CPA most likely would:

Which of the following statements is not correct about materiality?

Which of the following is not a concern as to whether a misstatement is qualitatively material?

Which of the following procedures would an auditor most likely include in the initial planning of an examination of financial statements?

An auditor is required to establish an understanding with a client regarding the responsibilities for each engagement. This understanding generally includes:

Tolerable misstatement is:

The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants:

An auditor obtains knowledge about a new client's business and its industry in order to:

With few exceptions, the Code of Professional Conduct does not allow an auditor to disclose confidential client information without the client's consent.

When the prospective client has previously been audited, auditing standards require that the successor auditor make certain inquiries of the predecessor auditor before accepting the engagement.

Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?

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

An independent auditor might consider the procedures performed by the internal audit function because:

If the prospective client refuses to allow the predecessor auditor to communicate with the successor auditor, the successor auditor should have reservations about accepting the client.

In assessing whether to accept a client for an audit engagement, a CPA should consider:

Materiality is based only on a quantitative analysis of the financial statements.

Which of the following arranges the general types of audit tests in the order they are normally performed in an audit?

To emphasize auditor independence from management, publicly traded corporations are required to:

How would an auditor identify related parties and what is the importance of doing so?

An auditor who discovers that a client's employees paid small bribes to municipal officials most likely would withdraw from the engagement if:

During the initial planning phase of an audit, a CPA most likely would:

Which of the following statements is not correct about materiality?

Which of the following is not a concern as to whether a misstatement is qualitatively material?

Which of the following procedures would an auditor most likely include in the initial planning of an examination of financial statements?

An auditor is required to establish an understanding with a client regarding the responsibilities for each engagement. This understanding generally includes:

Tolerable misstatement is:

The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants:

An auditor obtains knowledge about a new client's business and its industry in order to:

With few exceptions, the Code of Professional Conduct does not allow an auditor to disclose confidential client information without the client's consent.

When the prospective client has previously been audited, auditing standards require that the successor auditor make certain inquiries of the predecessor auditor before accepting the engagement.

Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?

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