Question 1

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. C

Question 2

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. C

Question 3

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. C

Question 4

A dual-purpose test

Accepted Answer

A)  Simultaneously tests debits and credits. 
B)  Is a procedure completed by both the internal and external auditors. 
C)  Is useful to both the entity and the auditor. 
D)  Is both a substantive test of transactions and a test of controls. 
A)  Simultaneously tests debits and credits. 
B)  Is a procedure completed by both the internal and external auditors. 
C)  Is useful to both the entity and the auditor. 
D)  Is both a substantive test of transactions and a test of controls.

Question 5

BDK Accounting is auditing a new client, A La Carte Catering. BDK could save audit time by using work from A La Carte's internal audit staff. The staff consists of three accountants with public accounting experience and certification. A La Carte requires every member of its accounting department to spend two out of every five years on the internal audit staff. Then, the employee is rotated back into the accounting department for a couple of years. What factors should BDK consider when determining whether or not it can use work of the internal audit staff? In this case, what should BDK decide?

Accepted Answer

The major issue for BDK is the competenc

Question 6

Which of the following is a general audit test?

Accepted Answer

A)  Fee assessment procedures. 
B)  Tests of controls. 
C)  Preparation of corporate tax returns. 
D)  Active testing procedures. 
A)  Fee assessment procedures. 
B)  Tests of controls. 
C)  Preparation of corporate tax returns. 
D)  Active testing procedures.

Question 7

Which of the following relatively small misstatements most likely would have a material effect on an entity's financial statements?

Accepted Answer

A)  An illegal payment to a foreign official that was not recorded. 
B)  A piece of obsolete office equipment that was not retired. 
C)  A petty cash fund disbursement that was not properly authorized. 
D)  An uncollectible account receivable that was not written-off. 
A)  An illegal payment to a foreign official that was not recorded. 
B)  A piece of obsolete office equipment that was not retired. 
C)  A petty cash fund disbursement that was not properly authorized. 
D)  An uncollectible account receivable that was not written-off.

Question 8

Evaluating a prospective client requires which of the following steps?

Accepted Answer

A)  Communicate with the predecessor auditor. 
B)  Preplan the audit. 
C)  Establish the terms of the engagement. 
D)  None of these. 
A)  Communicate with the predecessor auditor. 
B)  Preplan the audit. 
C)  Establish the terms of the engagement. 
D)  None of these.

Question 9

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 10

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 11

Which of the following would not necessarily be a related party transaction?

Accepted Answer

A)  Sales to another corporation with a similar name. 
B)  Purchases from another corporation that is controlled by the corporation's chief stockholder. 
C)  Loan from the corporation to a major stockholder. 
D)  Sale of land to the corporation by the spouse of a director. 
A)  Sales to another corporation with a similar name. 
B)  Purchases from another corporation that is controlled by the corporation's chief stockholder. 
C)  Loan from the corporation to a major stockholder. 
D)  Sale of land to the corporation by the spouse of a director.

Question 12

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 13

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 14

In order to properly preplan the audit, the auditor must determine the engagement team requirements and ensure the independence of the audit team and audit firm.

Accepted Answer

A) True 
 B)False

Question 15

Evaluating a prospective client requires which of the following steps?

Accepted Answer

A)  Communicate with the SEC. 
B)  Preplan the audit. 
C)  Determine if the firm is independent of the client. 
D)  Communicate with the AICPA. 
A)  Communicate with the SEC. 
B)  Preplan the audit. 
C)  Determine if the firm is independent of the client. 
D)  Communicate with the AICPA.

Question 16

There are five general types of audit tests.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

A written understanding between the auditor and the client concerning the auditor's responsibility for the discovery of illegal acts is usually set forth in a(n)

Accepted Answer

A)  Client representation letter. 
B)  Letter of audit inquiry. 
C)  Management letter. 
D)  Engagement letter. 
A)  Client representation letter. 
B)  Letter of audit inquiry. 
C)  Management letter. 
D)  Engagement letter.

Question 19

Which of the following matters generally is included in an auditor's engagement letter?

Accepted Answer

A)  Management's responsibility for the entity's compliance with laws and regulations. 
B)  The factors to be considered in setting preliminary judgments about materiality. 
C)  Management's liability for illegal acts committed by its employees. 
D)  The auditor's responsibility to guarantee accuracy of the financial statements. 
A)  Management's responsibility for the entity's compliance with laws and regulations. 
B)  The factors to be considered in setting preliminary judgments about materiality. 
C)  Management's liability for illegal acts committed by its employees. 
D)  The auditor's responsibility to guarantee accuracy of the financial statements.

Question 20

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.

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

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

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

A dual-purpose test

Which of the following is a general audit test?

Which of the following relatively small misstatements most likely would have a material effect on an entity's financial statements?

Evaluating a prospective client requires which of the following steps?

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

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

Which of the following would not necessarily be a related party transaction?

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.

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

In order to properly preplan the audit, the auditor must determine the engagement team requirements and ensure the independence of the audit team and audit firm.

Evaluating a prospective client requires which of the following steps?

There are five general types of audit tests.

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

A written understanding between the auditor and the client concerning the auditor's responsibility for the discovery of illegal acts is usually set forth in a(n)

Which of the following matters generally is included in an auditor's engagement letter?

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

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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

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

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

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

A dual-purpose test

Which of the following is a general audit test?

Which of the following relatively small misstatements most likely would have a material effect on an entity's financial statements?

Evaluating a prospective client requires which of the following steps?

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

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

Which of the following would not necessarily be a related party transaction?

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.

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

In order to properly preplan the audit, the auditor must determine the engagement team requirements and ensure the independence of the audit team and audit firm.

Evaluating a prospective client requires which of the following steps?

There are five general types of audit tests.

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

A written understanding between the auditor and the client concerning the auditor's responsibility for the discovery of illegal acts is usually set forth in a(n)

Which of the following matters generally is included in an auditor's engagement letter?

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

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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