Exam 5: Client Acceptance and Continuance and Preliminary Engagement Procedures

The Sarbanes-Oxley Act requires that all public companies have an audit committee comprised of at least three independent financial experts and at least one other person.

A company's recent restatement of previously issued financial statements is a favorable indicator that the company's internal controls are effective in the timely detection of errors and misstatements.

An audit engagement letter:

Earnings management pertains to:

By communicating with the predecessor auditor, an incoming auditor may gain valuable information pertaining to:

Which of the following is least important to the auditor when investigating a potential new audit client?

What are the characteristics of fraud, and how does the suspicion of fraud in a company affect an auditor's client acceptance or continuance decision?

The engagement letter states that an auditor's opinion on the financial statements and effectiveness of the company's ICFR will depend upon the following type of evidential matter:

Items documented in an engagement letter about which the auditor and client establish an understanding include:

Which of the following is not a likely reason why an audit firm does not possess the necessary resources to perform an audit engagement?

In an audit engagement letter, a clause addressing document retention states that the auditors will retain the client company's accounting records until the audit fees have been collected.

Audit firms should always avoid a potential client company that conducts significant related party transactions in the ordinary course of business.

Related party transactions are:

An audit engagement letter specifies that management of the client company is responsible for all of the following except:

An auditor's professional competence depends upon each of the following except:

The New York Stock Exchange requirements regarding composition of the audit committee include each of the following except:

By speaking with individuals inside the company, an auditor may learn about:

Which of the following are least problematic for an auditor about going concern issues of a potential audit client?

Facts that warn an auditor that fraud may be occurring can also inform the auditor's judgments on client acceptance and continuance.

An auditor's professional competence is directly related to the audit fees it is able to negotiate as part of the client acceptance or continuance activities.