Question 1

One reason why the independent auditor performs analytical procedures of the client's operations is to identify:

Accepted Answer

A)  deficiencies of a material nature in the internal control. 
B)  unusual transactions. 
C)  non-compliance with prescribed control procedures. 
D)  improper separation of accounting and other financial duties. 
A)  deficiencies of a material nature in the internal control. 
B)  unusual transactions. 
C)  non-compliance with prescribed control procedures. 
D)  improper separation of accounting and other financial duties.

Question 2

An audit program should be designed for each individual audit and should include audit steps and procedures to:

Accepted Answer

A)  ensure that only material items are audited. 
B)  detect all fraud. 
C)  identify all internal control weaknesses. 
D)  ensure an efficient and effective audit. 
A)  ensure that only material items are audited. 
B)  detect all fraud. 
C)  identify all internal control weaknesses. 
D)  ensure an efficient and effective audit.

Question 3

Engagement letters include all of the following except:

Accepted Answer

A)  a list of additional services that will be provided. 
B)  a list of adjusting journal entries. 
C)  information about the audit fee. 
D)  arrangements involving the use of experts. 
A)  a list of additional services that will be provided. 
B)  a list of adjusting journal entries. 
C)  information about the audit fee. 
D)  arrangements involving the use of experts.

Question 4

An audit firm's quality control procedures pertaining to the acceptance of a prospective audit client would most likely include:

Accepted Answer

A)  inquiry of management as to whether disagreements between the previous auditor and the prospective client were resolved satisfactorily. 
B)  consideration of whether sufficient appropriate audit evidence may be obtained to afford a reasonable basis for an opinion. 
C)  inquiry of third parties, such as the prospective client's bankers and solicitors, about information regarding the prospective client and its management. 
D)  consideration of whether the internal control is sufficiently effective to permit a reduction in the extent of required substantive tests. 
A)  inquiry of management as to whether disagreements between the previous auditor and the prospective client were resolved satisfactorily. 
B)  consideration of whether sufficient appropriate audit evidence may be obtained to afford a reasonable basis for an opinion. 
C)  inquiry of third parties, such as the prospective client's bankers and solicitors, about information regarding the prospective client and its management. 
D)  consideration of whether the internal control is sufficiently effective to permit a reduction in the extent of required substantive tests.

Question 5

The auditor notices significant fluctuations in key elements of the company's financial report. If management is unable to provide an acceptable explanation, the auditor should:

Accepted Answer

A)  consider the matter a scope limitation. 
B)  perform additional audit procedures to investigate the matter further. 
C)  intensify the examination with the expectation of detecting management fraud. 
D)  withdraw from the engagement. 
A)  consider the matter a scope limitation. 
B)  perform additional audit procedures to investigate the matter further. 
C)  intensify the examination with the expectation of detecting management fraud. 
D)  withdraw from the engagement.

Question 6

Which of the following is a nonfinancial performance measure?

Accepted Answer

A)  Warranty rates. 
B)  Return on investment. 
C)  Net profit. 
D)  Sales. 
A)  Warranty rates. 
B)  Return on investment. 
C)  Net profit. 
D)  Sales.

Question 7

An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of:

Accepted Answer

A)  tests of transactions and balances. 
B)  a preliminary review of internal accounting control. 
C)  specialised audit programs. 
D)  analytical procedures. 
A)  tests of transactions and balances. 
B)  a preliminary review of internal accounting control. 
C)  specialised audit programs. 
D)  analytical procedures.

Question 8

What is the responsibility of an auditor with respect to communicating with the previous auditor in connection with a prospective new audit client?

Accepted Answer

A)  The auditor has no responsibility to contact the previous auditor. 
B)  The auditor should contact the previous auditor regardless of whether the prospective client authorises contact. 
C)  The auditor need not contact the previous auditor if the successor is aware of all available facts. 
D)  The auditor should obtain permission from the prospective client to contact the previous auditor. 
A)  The auditor has no responsibility to contact the previous auditor. 
B)  The auditor should contact the previous auditor regardless of whether the prospective client authorises contact. 
C)  The auditor need not contact the previous auditor if the successor is aware of all available facts. 
D)  The auditor should obtain permission from the prospective client to contact the previous auditor.

Question 9

An auditor would place most reliance on the results of analytical procedures when there is:

Accepted Answer

A)  material balance, low inherent risk, low control risk. 
B)  immaterial balance, high inherent risk, high control risk. 
C)  material balance, low inherent risk, high control risk. 
D)  immaterial balance, low inherent risk, low control risk. 
A)  material balance, low inherent risk, low control risk. 
B)  immaterial balance, high inherent risk, high control risk. 
C)  material balance, low inherent risk, high control risk. 
D)  immaterial balance, low inherent risk, low control risk.

Question 10

Analytical procedures may be classified as being primarily:

Accepted Answer

A)  tests of control. 
B)  detailed tests of balances. 
C)  tests of ratios. 
D)  substantive tests. 
A)  tests of control. 
B)  detailed tests of balances. 
C)  tests of ratios. 
D)  substantive tests.

Question 11

Time budgets on audit engagements are not used for which of the following reasons?

Accepted Answer

A)  Monitor actual audit hours worked by staff on an engagement. 
B)  Ensure that adequate time is allocated to significant areas of the audit. 
C)  Estimate an appropriate fee for the engagement. 
D)  To ensure that audit staff working on the engagement are paid the correct amount. 
A)  Monitor actual audit hours worked by staff on an engagement. 
B)  Ensure that adequate time is allocated to significant areas of the audit. 
C)  Estimate an appropriate fee for the engagement. 
D)  To ensure that audit staff working on the engagement are paid the correct amount.

Question 12

To ascertain the exact name of the corporate client, the auditor relies primarily on:

Accepted Answer

A)  corporate minutes. 
B)  by-laws. 
C)  company constitution. 
D)  tax returns. 
A)  corporate minutes. 
B)  by-laws. 
C)  company constitution. 
D)  tax returns.

Question 13

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

Accepted Answer

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

Question 14

Which of the following is not a benefit of analytical procedures?

Accepted Answer

A)  Assists in understanding a client's business and identifying areas of potential risk. 
B)  Enables the auditor to review the financial and non-financial information of a client. 
C)  May reduce the level of detailed audit testing if the control system surrounding the reliability of the information is strong. 
D)  Provides adjustments to error levels during tests of control. 
A)  Assists in understanding a client's business and identifying areas of potential risk. 
B)  Enables the auditor to review the financial and non-financial information of a client. 
C)  May reduce the level of detailed audit testing if the control system surrounding the reliability of the information is strong. 
D)  Provides adjustments to error levels during tests of control.

Question 15

Which of the following is not an important consideration in an auditor's evaluation of an entity's business risk?

Accepted Answer

A)  The specific business risks that an entity faces may result in financial report errors and fraud. 
B)  Business risk factors affect the ability of an entity to be profitable and survive. 
C)  Auditing standards include many entity business risk factors that identify circumstances that increase the likelihood of material misstatements. 
D)  Auditing standards require the auditor to evaluate the entity's business risk in order to provide suggestions to improve the entity's profitability. 
A)  The specific business risks that an entity faces may result in financial report errors and fraud. 
B)  Business risk factors affect the ability of an entity to be profitable and survive. 
C)  Auditing standards include many entity business risk factors that identify circumstances that increase the likelihood of material misstatements. 
D)  Auditing standards require the auditor to evaluate the entity's business risk in order to provide suggestions to improve the entity's profitability.

Question 16

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

Question 17

Which of the following is the most likely first step that an auditor will perform after accepting an initial audit engagement?

Accepted Answer

A)  Prepare a rough draft of the financial report and of the auditor's report. 
B)  Assess control risk for the assertions embodied in the financial report. 
C)  Tour the client's facilities and review the general records. 
D)  Consult with and review the work of the previous auditor prior to discussing the engagement with the client management. 
A)  Prepare a rough draft of the financial report and of the auditor's report. 
B)  Assess control risk for the assertions embodied in the financial report. 
C)  Tour the client's facilities and review the general records. 
D)  Consult with and review the work of the previous auditor prior to discussing the engagement with the client management.

Question 18

Which of the following situations would most likely require special audit planning by the auditor?

Accepted Answer

A)  Some items of factory and office equipment do not bear identification numbers. 
B)  Depreciation methods used on the client's tax return differ from those used on the books. 
C)  Assets costing less than $500 are expensed even though the expected life exceeds one year. 
D)  Inventory is comprised of precious gemstones. 
A)  Some items of factory and office equipment do not bear identification numbers. 
B)  Depreciation methods used on the client's tax return differ from those used on the books. 
C)  Assets costing less than $500 are expensed even though the expected life exceeds one year. 
D)  Inventory is comprised of precious gemstones.

Question 19

The auditor generally gives most emphasis to ratio and trend analysis in the examination of:

Accepted Answer

A)  retained earnings. 
B)  income. 
C)  financial position. 
D)  cash flows. 
A)  retained earnings. 
B)  income. 
C)  financial position. 
D)  cash flows.

Question 20

During preliminary audit planning:

Accepted Answer

A)  the auditor considers the possibility of business failure. 
B)  the auditor designs the audit to search for evidence to support the company's continued existence. 
C)  the auditor does not need to consider the possibility of business failure because that is a procedure performed during the overall evaluation at the end of the audit. 
D)  the auditor inquires of the company's legal advisers concerning the possibility of going concern problems. 
A)  the auditor considers the possibility of business failure. 
B)  the auditor designs the audit to search for evidence to support the company's continued existence. 
C)  the auditor does not need to consider the possibility of business failure because that is a procedure performed during the overall evaluation at the end of the audit. 
D)  the auditor inquires of the company's legal advisers concerning the possibility of going concern problems.

One reason why the independent auditor performs analytical procedures of the client's operations is to identify:

An audit program should be designed for each individual audit and should include audit steps and procedures to:

Engagement letters include all of the following except:

An audit firm's quality control procedures pertaining to the acceptance of a prospective audit client would most likely include:

The auditor notices significant fluctuations in key elements of the company's financial report. If management is unable to provide an acceptable explanation, the auditor should:

Which of the following is a nonfinancial performance measure?

An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of:

What is the responsibility of an auditor with respect to communicating with the previous auditor in connection with a prospective new audit client?

An auditor would place most reliance on the results of analytical procedures when there is:

Analytical procedures may be classified as being primarily:

Time budgets on audit engagements are not used for which of the following reasons?

To ascertain the exact name of the corporate client, the auditor relies primarily on:

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

Which of the following is not a benefit of analytical procedures?

Which of the following is not an important consideration in an auditor's evaluation of an entity's business risk?

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

Which of the following is the most likely first step that an auditor will perform after accepting an initial audit engagement?

Which of the following situations would most likely require special audit planning by the auditor?

The auditor generally gives most emphasis to ratio and trend analysis in the examination of:

During preliminary audit planning:

Assurance and Auditing: An Overview

The Structure of the Profession

Ethics, Independence and Corporate Governance

The Legal Liability of Auditors Part Two: Planning and Risk

Overview of Elements of the Financial Report Audit Process

Assessing Specific Business Risk

Understanding and Assessing Internal Control Part Three: Tests of Control and Tests of Details

Tests of Controls

Substantive Tests of Transactions and Balances

Audit Sampling Part Four: Completion and Communication

Completion and Review

The Auditors Reporting Obligations Part Five: Other Assurance Services

Internal Auditing

Auditing and Assurance Services in the Public Sector

Other Assurance Services and Advanced Topics

Filters

Exam 6: Planning, Understanding the Entity and Evaluating Business Risk

One reason why the independent auditor performs analytical procedures of the client's operations is to identify:

An audit program should be designed for each individual audit and should include audit steps and procedures to:

Engagement letters include all of the following except:

An audit firm's quality control procedures pertaining to the acceptance of a prospective audit client would most likely include:

The auditor notices significant fluctuations in key elements of the company's financial report. If management is unable to provide an acceptable explanation, the auditor should:

Which of the following is a nonfinancial performance measure?

An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of:

What is the responsibility of an auditor with respect to communicating with the previous auditor in connection with a prospective new audit client?

An auditor would place most reliance on the results of analytical procedures when there is:

Analytical procedures may be classified as being primarily:

Time budgets on audit engagements are not used for which of the following reasons?

To ascertain the exact name of the corporate client, the auditor relies primarily on:

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

Which of the following is not a benefit of analytical procedures?

Which of the following is not an important consideration in an auditor's evaluation of an entity's business risk?

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

Which of the following is the most likely first step that an auditor will perform after accepting an initial audit engagement?

Which of the following situations would most likely require special audit planning by the auditor?

The auditor generally gives most emphasis to ratio and trend analysis in the examination of:

During preliminary audit planning:

Assurance and Auditing: An Overview

The Structure of the Profession

Ethics, Independence and Corporate Governance

The Legal Liability of Auditors Part Two: Planning and Risk

Overview of Elements of the Financial Report Audit Process

Assessing Specific Business Risk

Understanding and Assessing Internal Control Part Three: Tests of Control and Tests of Details

Tests of Controls

Substantive Tests of Transactions and Balances

Audit Sampling Part Four: Completion and Communication

Completion and Review

The Auditors Reporting Obligations Part Five: Other Assurance Services

Internal Auditing

Auditing and Assurance Services in the Public Sector

Other Assurance Services and Advanced Topics

Filters