Question 1

A form filed with the SEC when a company changes auditors is a:

Accepted Answer

A)  Form 8-K. 
B)  Form 10-K. 
C)  Form S-1. 
D)  Form B-1. 
A)  Form 8-K. 
B)  Form 10-K. 
C)  Form S-1. 
D)  Form B-1.

Question 2

Which of the following is not one of the assertions made by management about an account balance?

Accepted Answer

A)  Relevance. 
B)  Existence. 
C)  Valuation. 
D)  Rights and obligations. 
A)  Relevance. 
B)  Existence. 
C)  Valuation. 
D)  Rights and obligations.

Question 3

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

Accepted Answer

A)  The prospective client has fired its prior auditor. 
B)  The CPA lacks a thorough understanding of the prospective client's operations and industry. 
C)  The CPA is unable to review the predecessor auditor's working papers due to a major fire that destroyed both hard and soft copy documentation. 
D)  The prospective client is unwilling to make financial records available to the CPA. 
A)  The prospective client has fired its prior auditor. 
B)  The CPA lacks a thorough understanding of the prospective client's operations and industry. 
C)  The CPA is unable to review the predecessor auditor's working papers due to a major fire that destroyed both hard and soft copy documentation. 
D)  The prospective client is unwilling to make financial records available to the CPA.

Question 4

Which of the following is not used by auditors to establish the completeness of recorded assets?

Accepted Answer

A)  Assessing control risk. 
B)  Tracing from source documents to entries in the accounting records. 
C)  Performing analytical procedures. 
D)  Vouching transactions. 
A)  Assessing control risk. 
B)  Tracing from source documents to entries in the accounting records. 
C)  Performing analytical procedures. 
D)  Vouching transactions.

Question 5

To test for unsupported entries in the journals, the direction of audit testing should be to the:

Accepted Answer

A)  Ledger entries. 
B)  Journal entries. 
C)  Original source documents. 
D)  Financial statements. 
A)  Ledger entries. 
B)  Journal entries. 
C)  Original source documents. 
D)  Financial statements.

Question 6

The auditors will not ordinarily initiate discussion with the audit committee concerning the:

Accepted Answer

A)  Extent to which the work of internal auditors will influence the scope of the examination. 
B)  Extent to which change in the company's organization will influence the scope of the examination. 
C)  Details of potential problems which the auditors believe might cause a qualified opinion. 
D)  Details of the procedures which the auditors intend to apply. 
A)  Extent to which the work of internal auditors will influence the scope of the examination. 
B)  Extent to which change in the company's organization will influence the scope of the examination. 
C)  Details of potential problems which the auditors believe might cause a qualified opinion. 
D)  Details of the procedures which the auditors intend to apply.

Question 7

Which of the following is not a general objective for the audit of asset accounts?

Accepted Answer

A)  Establishing existence of assets. 
B)  Establishing proper valuation of assets. 
C)  Establishing proper liabilities relating to assets. 
D)  Establishing the completeness of assets. 
A)  Establishing existence of assets. 
B)  Establishing proper valuation of assets. 
C)  Establishing proper liabilities relating to assets. 
D)  Establishing the completeness of assets.

Question 8

Auditors perform various tasks in planning an audit engagement. Provide an overall description of how each task is performed and its purpose.
a. Obtain an understanding of the client's business.
b. Assess audit risk and materiality for the engagement.
c. Assess fraud risk.
d. Assess the risk of material misstatement of assertions about financial statement accounts and classes of transactions.

Accepted Answer

a. The auditors obtain an understanding

Question 9

Preliminary arrangements with clients should be set forth in the management letter.

Accepted Answer

A) True 
 B)False

Question 10

Analytical procedures are seldom used during the risk assessment stage of an audit engagement because they are substantive procedures.

Accepted Answer

A) True 
 B)False

Question 11

A predecessor auditor will ordinarily initiate communication with the successor auditor: $\begin{array}{|l|l|}
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Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 12

On September 3, 20X1, Larkin, CPA, was engaged to audit the financial statements of Precious Metals Co. (PM), for the year ended October 31, 20X1. PM purchases precious metals at wholesale prices and resells them to craft clubs at retail. PM is a new client whose common stock was first offered to the public five years ago. PM received an unqualified opinion on its financial statements in each of the prior three years, but changes auditors after each engagement. In accepting the engagement, Larkin completed all of the appropriate client acceptance procedures.
Larkin instructed Johnson, an assistant on the engagement, to draft a planning checklist that would assist Larkin in preparing the audit staff for the fieldwork that is scheduled to begin on October 17, 20X1. On October 5, 20X1, Johnson prepared the planning checklist below (engagement letter points have been omitted). Indicate the inappropriate points that are included on Johnson's planning checklist. I. Understanding the engagement
In planning the audit, have the engagement personnel considered:
1. PM's accounting policies and procedures?
2. Financial statement items likeby to require adjustment?
3. The nature of the reports expected to be rendered?
4. The effects of accounting and auditing pronouncements, particularly new ones?
5. Methods of audit sampling to be used?
6. Whether the method of sampling is likely to be approved by PM?
7. The extent of involvement of other independent auditors or internal auditors?
8. Procedures to evaluate competence and objectivity of PM's internal auditors?

In planning the audit, have engaged personnel discussed:
9. The general scope and timing of the audit work with PM's management, board of directors, or audit corrmittee?
The risk of misstatement due to fraud tor each ass ertion for each account with PM's management, board of
10. directors, and the audit cormittee? II. Assigning personnel to the engagement
Has a time budget tor the engagement been prepared to determine the stafing requirements and to schedule the fieldwork, and has it been approw ed by:
11. The engagement partner?
12. PM's controller and audit committee?
13. Has the engagement stafting schedule been approved by the engagement partner?

Have the following factors been considered:
14. Engagement size and complexity?
15. Personnel available?
16. Timing of the work to be performed?
17. Continuity and periodic rotation of personnel?
18. Need to restrict engagement to CPAs? III. Knowledge of the ently's business
Has an overall understanding of PM's operations been obtained by reviewing:
19. Successor auditor's working papers?
20. Financial statements and interim financial statements?
21. Minutes of stockholders' and board of directors' meetings?
22. Filings with regulatory agencies?
23. Rec ent management letters?
24. The Codification of Statements on Auditing Standards?
25. Economic conditions, government regulations, and specialist accounting practices?
26. Have engagement personnel obtained knowledge of PM's organization and operating characteristics?

Have engagement personnel considered:
27. Factors affecting the risk of misstatements due to error or fraud?
28. Materiality?
29. Degree of understanding of internal control to plan the audit?
30. Methods that PM uses to process accounting information?
31. Whether their investments in PM stock are material? IV. Assessing aucitablity
Has the adequacy of the accounting records been assessed for proper:
32. Descriptions of transactions to permit the appropriate financial statement classification?
33. Information about transactions to permit the recording of appropriate monetary amounts?
34. Recording of transactions in the appropriate accounting period?

Have the following factors regarding the integrity of management been considered in planning the audit:
35. Res ponses to previous inquiries of local attomeys, bankers, and other business leaders regarding PM's standing in the community?
36. PM's credit rating?
37. Hav'e inquiries of a sample of PM's customers regarding PM's credit-granting polic ies been made? V. Assessing risk
38. Has detection risk been appropriately restricted to determine how much inherent risk can be accepted?
Has consideration been given to permitting FM's internal auditors to make the assessment of inherent risk and
39. evaluations of significant accounting estimates?

If control risk is assessed at below the maximum level:
40. Is the audit fee high enough to handle any likely litigation?
Hawe s pecific internal control activities that are likely to prevent or detect material misstatements in those assertions been identified?

If control risk is assessed at the maximum level for some or all assertions:
42. Is the scope of substantive testing appropriately decreased?
43. Have tests of controls to evaluate the design and operation of such activities been performed? VI. Illegal acts
Have the following matters been considered in assessing the risk that Ph has not complied with laws and regulations that have a direct and material effect on the financial statements:
44. Phis policy relatioe to the prevention of illegal acts?
45. Pl's understanding of the requirements of laws and regulations pertinent to its business?
46. Obtaining management's written ass urance that no employ ees have committed any illegal acts of ary' type? VII. Analytic al procedures
In planning the audit, have analytical procedures been used that focus on:
47. Enhancing an understanding of PM's business and the transactions and events of the year under audit?
48. Identifying areas that may represent specific risks relevant to the audit?
49. Evaluating the overall financial statement presentation? VIII. Audit strategies and the audih plan
50. Has the program been dev eloped for the engagement and approved by the engagement partner?

Accepted Answer

The following are inappropriate points:

Question 13

Which of the following is least likely to be considered a financial statement audit risk factor?

Accepted Answer

A)  Management operating and financing decisions are dominated by top management. 
B)  A new client with no prior audit history. 
C)  Rate of change in the entity's industry is rapid. 
D)  Profitability of the entity relative to its industry is inconsistent. 
A)  Management operating and financing decisions are dominated by top management. 
B)  A new client with no prior audit history. 
C)  Rate of change in the entity's industry is rapid. 
D)  Profitability of the entity relative to its industry is inconsistent.

Question 14

Determining that receivables are presented at net realizable value is most directly related to which management assertion?

Accepted Answer

A)  Existence. 
B)  Rights. 
C)  Valuation. 
D)  Presentation and disclosure. 
A)  Existence. 
B)  Rights. 
C)  Valuation. 
D)  Presentation and disclosure.

Question 15

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

Accepted Answer

A)  Limitations of the engagement. 
B)  Factors to be considered in establishing preliminary judgments about materiality. 
C)  Management's liability for all illegal acts committed by its employees. 
D)  The auditor's responsibility to obtain negative assurance relating to non-compliance with laws and regulations. 
A)  Limitations of the engagement. 
B)  Factors to be considered in establishing preliminary judgments about materiality. 
C)  Management's liability for all illegal acts committed by its employees. 
D)  The auditor's responsibility to obtain negative assurance relating to non-compliance with laws and regulations.

Question 16

Which of the following is correct concerning the PCAOB's concept of a significant account?

Accepted Answer

A)  It is the same as a relevant assertion. 
B)  The auditor need only consider significant accounts when controls do not operate effectively. 
C)  In deciding whether an account is a significant account one does not consider the effect of internal control. 
D)  It is an account for which qualitative materiality considerations are particularly important. 
A)  It is the same as a relevant assertion. 
B)  The auditor need only consider significant accounts when controls do not operate effectively. 
C)  In deciding whether an account is a significant account one does not consider the effect of internal control. 
D)  It is an account for which qualitative materiality considerations are particularly important.

Question 17

Which of the following statements is correct regarding the auditor's determination of materiality?

Accepted Answer

A)  The planning level of materiality should normally be the larger of the amount considered for the balance sheet versus the income statement. 
B)  The auditors' planning level of materiality may be disaggregated into smaller "tolerable misstatements" for the various accounts. 
C)  Auditors may use various rules of thumb to arrive at an evaluation level of materiality, but not for determining the planning level of materiality. 
D)  The amount used for the planning should equal that used for evaluation. 
A)  The planning level of materiality should normally be the larger of the amount considered for the balance sheet versus the income statement. 
B)  The auditors' planning level of materiality may be disaggregated into smaller "tolerable misstatements" for the various accounts. 
C)  Auditors may use various rules of thumb to arrive at an evaluation level of materiality, but not for determining the planning level of materiality. 
D)  The amount used for the planning should equal that used for evaluation.

Question 18

Auditors must assess fraud risk on every audit and respond to the risks that are identified. Which of the following is not a procedure required to further address the fraud risk of management override of internal control?

Accepted Answer

A)  Reviewing accounting estimates for biases. 
B)  Examining physical controls over assets. 
C)  Evaluating the business rationale for significant unusual transactions. 
D)  Examining journal entries and other adjustments for evidence of fraud. 
A)  Reviewing accounting estimates for biases. 
B)  Examining physical controls over assets. 
C)  Evaluating the business rationale for significant unusual transactions. 
D)  Examining journal entries and other adjustments for evidence of fraud.

A form filed with the SEC when a company changes auditors is a:

Which of the following is not one of the assertions made by management about an account balance?

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

Which of the following is not used by auditors to establish the completeness of recorded assets?

To test for unsupported entries in the journals, the direction of audit testing should be to the:

The auditors will not ordinarily initiate discussion with the audit committee concerning the:

Which of the following is not a general objective for the audit of asset accounts?

Preliminary arrangements with clients should be set forth in the management letter.

Analytical procedures are seldom used during the risk assessment stage of an audit engagement because they are substantive procedures.

Which of the following is least likely to be considered a financial statement audit risk factor?

Determining that receivables are presented at net realizable value is most directly related to which management assertion?

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

Which of the following is correct concerning the PCAOB's concept of a significant account?

Which of the following statements is correct regarding the auditor's determination of materiality?

Auditors must assess fraud risk on every audit and respond to the risks that are identified. Which of the following is not a procedure required to further address the fraud risk of management override of internal control?

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, Notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property, Plant, and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Filters

Exam 6: Planning the Audit; Linking Audit Procedures to Risk

A form filed with the SEC when a company changes auditors is a:

Which of the following is not one of the assertions made by management about an account balance?

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

Which of the following is not used by auditors to establish the completeness of recorded assets?

To test for unsupported entries in the journals, the direction of audit testing should be to the:

The auditors will not ordinarily initiate discussion with the audit committee concerning the:

Which of the following is not a general objective for the audit of asset accounts?

Preliminary arrangements with clients should be set forth in the management letter.

Analytical procedures are seldom used during the risk assessment stage of an audit engagement because they are substantive procedures.

Which of the following is least likely to be considered a financial statement audit risk factor?

Determining that receivables are presented at net realizable value is most directly related to which management assertion?

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

Which of the following is correct concerning the PCAOB's concept of a significant account?

Which of the following statements is correct regarding the auditor's determination of materiality?

Auditors must assess fraud risk on every audit and respond to the risks that are identified. Which of the following is not a procedure required to further address the fraud risk of management override of internal control?

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, Notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property, Plant, and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Filters