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. D

Question 2

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 competence and objectivity of the internal audit function and the effect of their work on the audit.A La Carte's internal audit staff seems competent,as all of its auditors are certified.However,BDK should seriously question how objective the audit staff is.All of the internal auditors are also associated with other positions within the company.Further,all of the auditors are from the accounting department,so none of them could objectively audit the accounting area they worked in.To maintain independence,BDK would not be able to use the work of the internal audit staff in place of BDK's work.

Question 3

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. D

Question 4

All companies must have an audit committee.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not an audit procedure that is commonly used in performing tests of controls?

Accepted Answer

A)  Inquiring. 
B)  Observing. 
C)  Confirming. 
D)  Inspecting. 
A)  Inquiring. 
B)  Observing. 
C)  Confirming. 
D)  Inspecting.

Question 6

Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?

Accepted Answer

A)  The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques. 
B)  Management's disregard of its responsibility to maintain an adequate control environment. 
C)  The CPA's inability to determine whether related party transactions were consummated on terms equivalent to arm's-length transactions. 
D)  Management's refusal to permit the CPA to perform substantive procedures before the year-end. 
A)  The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques. 
B)  Management's disregard of its responsibility to maintain an adequate control environment. 
C)  The CPA's inability to determine whether related party transactions were consummated on terms equivalent to arm's-length transactions. 
D)  Management's refusal to permit the CPA to perform substantive procedures before the year-end.

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

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

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 stones. 
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 stones.

Question 9

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 10

Which element(s)is/are pervasive to the application of generally accepted auditing standards,particularly the standards of fieldwork and reporting?

Accepted Answer

A)  The elements of materiality and audit risk. 
B)  The element of internal control. 
C)  The element of corroborating evidence. 
D)  The element of reasonable assurance. 
A)  The elements of materiality and audit risk. 
B)  The element of internal control. 
C)  The element of corroborating evidence. 
D)  The element of reasonable assurance.

Question 11

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 12

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 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

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 shou

Question 15

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 16

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's

Accepted Answer

A)  Engagement letter. 
B)  Audit working papers. 
C)  Engagement letter and audit working papers. 
D)  It would not be typical to allow a review of either the engagement letter or the audit working papers. 
A)  Engagement letter. 
B)  Audit working papers. 
C)  Engagement letter and audit working papers. 
D)  It would not be typical to allow a review of either the engagement letter or the audit working papers.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

The three types of analytical procedures

Question 19

Under the Sarbanes-Oxley Act,the audit committee of a public company has the following requirement(s):

Accepted Answer

A)  Each member of the committee must be a board member and shall be independent. 
B)  The audit committee must preapprove all audit and nonaudit services. 
C)  The audit committee must establish and maintain procedures to handle all issues that relate to accounting, internal control, and auditing. 
D)  All of these. 
A)  Each member of the committee must be a board member and shall be independent. 
B)  The audit committee must preapprove all audit and nonaudit services. 
C)  The audit committee must establish and maintain procedures to handle all issues that relate to accounting, internal control, and auditing. 
D)  All of these.

Question 20

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.

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

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

All companies must have an audit committee.

Which of the following is not an audit procedure that is commonly used in performing tests of controls?

Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?

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

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

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

Which element(s)is/are pervasive to the application of generally accepted auditing standards,particularly the standards of fieldwork and reporting?

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

Evaluating a prospective client requires which of the following steps?

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

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.

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's

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

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

Under the Sarbanes-Oxley Act,the audit committee of a public company has the following requirement(s):

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)

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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

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

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

All companies must have an audit committee.

Which of the following is not an audit procedure that is commonly used in performing tests of controls?

Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?

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

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

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

Which element(s)is/are pervasive to the application of generally accepted auditing standards,particularly the standards of fieldwork and reporting?

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

Evaluating a prospective client requires which of the following steps?

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

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.

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's

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

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

Under the Sarbanes-Oxley Act,the audit committee of a public company has the following requirement(s):

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)

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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

Filters