Question 1

Which of the following would be included in the audit strategy document?

Accepted Answer

A) The number of sales transactions to be tested. 
B) The decision as to the combination of substantive testing and tests of control that would be adopted. 
C) A flowchart of the entity's internal control system. 
D) The results of the interim testing of payroll. 
A) The number of sales transactions to be tested. 
B) The decision as to the combination of substantive testing and tests of control that would be adopted. 
C) A flowchart of the entity's internal control system. 
D) The results of the interim testing of payroll.

Question 2

Analytical procedures used in planning an audit should focus on identifying:

Accepted Answer

A) the predictability of financial data from individual transactions. 
B) the various assertions that are embodied in the financial report. 
C) areas that may represent specific risk relevant to the audit. 
D) material weaknesses in internal control. 
A) the predictability of financial data from individual transactions. 
B) the various assertions that are embodied in the financial report. 
C) areas that may represent specific risk relevant to the audit. 
D) material weaknesses in internal control.

Question 3

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 4

Which of the following procedures would not be used to obtain an understanding of the entity and its environment?

Accepted Answer

A) Observe entity operations. 
B) Re-perform entity processes. 
C) Verify proper evaluation of inventory subject to technological obsolescence. 
D) Review prior year's audit documentation. 
A) Observe entity operations. 
B) Re-perform entity processes. 
C) Verify proper evaluation of inventory subject to technological obsolescence. 
D) Review prior year's audit documentation.

Question 5

Which of the following items 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 6

Enquiry of the previous auditor is:

Accepted Answer

A) required about matters that have a bearing on acceptance of the client. 
B) required after acceptance of a new client regarding matters the successor believes may affect the conduct of his or her audit. 
C) helpful to the successor and may facilitate the successor's audit, but is not required either before or after acceptance of the client. 
D) required only if the change in auditors resulted from a disagreement between the client and previous auditors. 
A) required about matters that have a bearing on acceptance of the client. 
B) required after acceptance of a new client regarding matters the successor believes may affect the conduct of his or her audit. 
C) helpful to the successor and may facilitate the successor's audit, but is not required either before or after acceptance of the client. 
D) required only if the change in auditors resulted from a disagreement between the client and previous auditors.

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

Which of the following procedures is not a typical analytical procedure?

Accepted Answer

A) Study of relationships of the financial information with relevant non-financial information. 
B) Comparison of the financial information with similar information regarding the industry in which the entity operates. 
C) Comparison of recorded amounts of major disbursements with appropriate invoices. 
D) Comparison of the financial information with budgeted amounts. 
A) Study of relationships of the financial information with relevant non-financial information. 
B) Comparison of the financial information with similar information regarding the industry in which the entity operates. 
C) Comparison of recorded amounts of major disbursements with appropriate invoices. 
D) Comparison of the financial information with budgeted amounts.

Question 9

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 10

An auditor searching for related-party transactions should obtain an understanding of each subsidiary's relationship to the total entity because:

Accepted Answer

A) intercompany transactions may have been consummated on terms equivalent to arm's length transactions. 
B) this might reveal whether particular transactions would have taken place if the parties had not been related. 
C) the business structure may be deliberately designed to obscure related-party transactions. 
D) this might permit the audit of intercompany account balances to be performed as of concurrent dates. 
A) intercompany transactions may have been consummated on terms equivalent to arm's length transactions. 
B) this might reveal whether particular transactions would have taken place if the parties had not been related. 
C) the business structure may be deliberately designed to obscure related-party transactions. 
D) this might permit the audit of intercompany account balances to be performed as of concurrent dates.

Question 11

A prospective client's refusal to give permission to communicate with the previous auditor and review certain portions of the previous auditor's working papers will bear directly on the auditor's decision concerning the:

Accepted Answer

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

Question 12

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 13

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 14

Prior to the acceptance of an audit engagement with a client who has terminated the services of the previous auditor, the proposed auditor should:

Accepted Answer

A) contact the previous auditor without advising the prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential. 
B) accept the engagement without contacting the previous auditor, since the proposed auditor can include audit procedures to verify the reason given by the client for the termination. 
C) not communicate with the previous auditor, because this would in effect be asking the auditor to violate the confidential relationship between auditor and client. 
D) advise the client of the intention to contact the previous auditor and request permission for the contact. 
A) contact the previous auditor without advising the prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential. 
B) accept the engagement without contacting the previous auditor, since the proposed auditor can include audit procedures to verify the reason given by the client for the termination. 
C) not communicate with the previous auditor, because this would in effect be asking the auditor to violate the confidential relationship between auditor and client. 
D) advise the client of the intention to contact the previous auditor and request permission for the contact.

Question 15

The auditor is most likely to rely on analytical procedures alone if a balance is:

Accepted Answer

A) material and internal controls are good. 
B) immaterial and internal controls are poor. 
C) immaterial and inherent risk is high. 
D) immaterial and internal controls are good. 
A) material and internal controls are good. 
B) immaterial and internal controls are poor. 
C) immaterial and inherent risk is high. 
D) immaterial and internal controls are good.

Question 16

Before accepting an engagement to audit a new client, an auditor is required to:

Accepted Answer

A) make enquiries of the predecessor auditor after obtaining the consent of the prospective client. 
B) obtain the prospective client's signature on the engagement letter. 
C) prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. 
D) discuss the management representation letter with the prospective client's audit committee. 
A) make enquiries of the predecessor auditor after obtaining the consent of the prospective client. 
B) obtain the prospective client's signature on the engagement letter. 
C) prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. 
D) discuss the management representation letter with the prospective client's audit committee.

Question 17

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 18

An auditor compares this year's revenues and expenses with those of the previous year and investigates all changes exceeding 10 per cent.By carrying out this procedure the auditor would be most likely to learn that:

Accepted Answer

A) an increase in property tax rates has not been recognised in the client's accrual. 
B) the provision for uncollectible accounts is inadequate because of worsening economic conditions. 
C) fourth-quarter payroll taxes were not paid. 
D) the client changed its capitalisation policy for small non-current assets. 
A) an increase in property tax rates has not been recognised in the client's accrual. 
B) the provision for uncollectible accounts is inadequate because of worsening economic conditions. 
C) fourth-quarter payroll taxes were not paid. 
D) the client changed its capitalisation policy for small non-current assets.

Question 19

Audit planning assists the auditor to:

Accepted Answer

A) identify and resolve potential problems on a timely basis. 
B) devote appropriate attention to important areas of the audit. 
C) perform the audit effectively and efficiently. 
D) All of the given answers are correct. 
A) identify and resolve potential problems on a timely basis. 
B) devote appropriate attention to important areas of the audit. 
C) perform the audit effectively and efficiently. 
D) All of the given answers are correct.

Question 20

An auditor who finds that the client has committed an illegal act would be most likely to withdraw from the engagement when the:

Accepted Answer

A) illegal act affects the auditor's ability to rely on management representations. 
B) illegal act has material financial report implications. 
C) illegal act has received widespread publicity. 
D) auditor cannot reasonably estimate the effect of the illegal act on the financial report. 
A) illegal act affects the auditor's ability to rely on management representations. 
B) illegal act has material financial report implications. 
C) illegal act has received widespread publicity. 
D) auditor cannot reasonably estimate the effect of the illegal act on the financial report.

Which of the following would be included in the audit strategy document?

Analytical procedures used in planning an audit should focus on identifying:

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

Which of the following procedures would not be used to obtain an understanding of the entity and its environment?

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

Enquiry of the previous auditor is:

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:

Which of the following procedures is not a typical analytical procedure?

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:

An auditor searching for related-party transactions should obtain an understanding of each subsidiary's relationship to the total entity because:

A prospective client's refusal to give permission to communicate with the previous auditor and review certain portions of the previous auditor's working papers will bear directly on the auditor's decision concerning the:

Analytical procedures may be classified as being primarily:

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

Prior to the acceptance of an audit engagement with a client who has terminated the services of the previous auditor, the proposed auditor should:

The auditor is most likely to rely on analytical procedures alone if a balance is:

Before accepting an engagement to audit a new client, an auditor is required to:

Engagement letters include all of the following except:

An auditor compares this year's revenues and expenses with those of the previous year and investigates all changes exceeding 10 per cent.By carrying out this procedure the auditor would be most likely to learn that:

Audit planning assists the auditor to:

An auditor who finds that the client has committed an illegal act would be most likely to withdraw from the engagement when the:

Assurance and Auditing: An Overview

Audit Regulation, Structure of the Profession and Auditors Liability

Ethics, Independence and Corporate Governance

Overview of Elements of the Financial Report Audit Process

Assessing Inherent Risk, and Other Specific Business Risks

Understanding and Assessing Internal Control

Tests of Controls

Substantive Tests of Transactions and Balances

Completion and Review

The Auditors Reporting Obligations

Other Assurance Services and Advanced Topics

Internal Auditing

Audit and Assurance Services in the Public Sector

Filters

Exam 5: Planning, Understanding the Entity and Assessing Business Risk

Which of the following would be included in the audit strategy document?

Analytical procedures used in planning an audit should focus on identifying:

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

Which of the following procedures would not be used to obtain an understanding of the entity and its environment?

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

Enquiry of the previous auditor is:

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:

Which of the following procedures is not a typical analytical procedure?

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:

An auditor searching for related-party transactions should obtain an understanding of each subsidiary's relationship to the total entity because:

A prospective client's refusal to give permission to communicate with the previous auditor and review certain portions of the previous auditor's working papers will bear directly on the auditor's decision concerning the:

Analytical procedures may be classified as being primarily:

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

Prior to the acceptance of an audit engagement with a client who has terminated the services of the previous auditor, the proposed auditor should:

The auditor is most likely to rely on analytical procedures alone if a balance is:

Before accepting an engagement to audit a new client, an auditor is required to:

Engagement letters include all of the following except:

An auditor compares this year's revenues and expenses with those of the previous year and investigates all changes exceeding 10 per cent.By carrying out this procedure the auditor would be most likely to learn that:

Audit planning assists the auditor to:

An auditor who finds that the client has committed an illegal act would be most likely to withdraw from the engagement when the:

Assurance and Auditing: An Overview

Audit Regulation, Structure of the Profession and Auditors Liability

Ethics, Independence and Corporate Governance

Overview of Elements of the Financial Report Audit Process

Assessing Inherent Risk, and Other Specific Business Risks

Understanding and Assessing Internal Control

Tests of Controls

Substantive Tests of Transactions and Balances

Completion and Review

The Auditors Reporting Obligations

Other Assurance Services and Advanced Topics

Internal Auditing

Audit and Assurance Services in the Public Sector

Filters