Question 1

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 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected?

Accepted Answer

A)  The details of most recorded transactions are not available after a specified period of time. 
B)  Internal control activities requiring segregation of duties are subject to management override. 
C)  It is unlikely that sufficient appropriate evidence is available to support an opinion on the financial statements. 
D)  Management has a reputation for consulting with several accounting firms about significant accounting issues. 
A)  The details of most recorded transactions are not available after a specified period of time. 
B)  Internal control activities requiring segregation of duties are subject to management override. 
C)  It is unlikely that sufficient appropriate evidence is available to support an opinion on the financial statements. 
D)  Management has a reputation for consulting with several accounting firms about significant accounting issues.

Question 5

As generally conceived,the audit committee of a publicly held company should be made up of

Accepted Answer

A)  Representatives of the major equity interests (preferred stock, common stock). 
B)  The audit partner, the chief financial officer, the legal counsel, and at least one outsider. 
C)  Representatives from the client's management, investors, suppliers, and customers. 
D)  Members of the board of directors who are not officers or employees. 
A)  Representatives of the major equity interests (preferred stock, common stock). 
B)  The audit partner, the chief financial officer, the legal counsel, and at least one outsider. 
C)  Representatives from the client's management, investors, suppliers, and customers. 
D)  Members of the board of directors who are not officers or employees.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 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 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

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 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

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 13

Name the three types of analytical procedures and provide a definition and example for each.

Accepted Answer

The three types of analytical procedures

Question 14

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 15

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 16

There are five general types of audit tests.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Define the engagement letter and discuss its importance.

Accepted Answer

An engagement letter formalizes the arra

Question 19

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 20

Which of the following would an auditor most likely use in determining the auditor's planning materiality?

Accepted Answer

A)  The anticipated sample size for planned substantive procedures. 
B)  The entity's annualized interim (i.e. quarterly) financial statements. 
C)  The results of the internal control questionnaire. 
D)  The contents of the management representation letter. 
A)  The anticipated sample size for planned substantive procedures. 
B)  The entity's annualized interim (i.e. quarterly) financial statements. 
C)  The results of the internal control questionnaire. 
D)  The contents of the management representation letter.

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

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 lead a CPA to conclude that a potential audit engagement should be rejected?

As generally conceived,the audit committee of a publicly held company should be made up of

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

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

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

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

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 would not necessarily be a related party transaction?

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.

Name the three types of analytical procedures and provide a definition and example for each.

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

There are five general types of audit tests.

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?

Define the engagement letter and discuss its importance.

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

Which of the following would an auditor most likely use in determining the auditor's planning 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

Assurance,Attestation,and Internal Auditing Services

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

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 lead a CPA to conclude that a potential audit engagement should be rejected?

As generally conceived,the audit committee of a publicly held company should be made up of

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

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

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

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

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 would not necessarily be a related party transaction?

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.

Name the three types of analytical procedures and provide a definition and example for each.

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

There are five general types of audit tests.

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?

Define the engagement letter and discuss its importance.

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

Which of the following would an auditor most likely use in determining the auditor's planning 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

Assurance,Attestation,and Internal Auditing Services

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