Question 1

Which is usually included in an engagement letter?

Accepted Answer

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

Question 2

Which of the following best describes the coporate minutes of an entity?

Accepted Answer

A)  official record of the meetings of the board of directors and the stockholders 
B)  unofficial record of the meeting of the board of directors 
C)  official record of management meeting with investors and creditors of the company 
D)  unofficial record of the board of directors meetings 
A)  official record of the meetings of the board of directors and the stockholders 
B)  unofficial record of the meeting of the board of directors 
C)  official record of management meeting with investors and creditors of the company 
D)  unofficial record of the board of directors meetings

Question 3

A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called:

Accepted Answer

A)  control risk. 
B)  acceptable audit risk. 
C)  statistical risk. 
D)  inherent risk. 
A)  control risk. 
B)  acceptable audit risk. 
C)  statistical risk. 
D)  inherent risk.

Question 4

When inherent risk is high, there will need to be:

Accepted Answer

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

Question 5

A predecessor auditor who has been contacted by a successor auditor for information about the client does not have to obtain permission from the former client before providing any confidential information to the successor auditor because the confidentiality requirement does not extend to former clients.

Accepted Answer

A) True 
 B)False

Question 6

What are three factors that have increased the importance of obtaining an understanding of a client's business and industry? How can an auditor obtain this understanding?

Accepted Answer

Factors that have increased the importan

Question 7

Which of the following is not correct regarding an auditor's decision that a lower acceptable audit risk is appropriate?

Accepted Answer

A)  More evidence is accumulated. 
B)  Less evidence is accumulated. 
C)  Special care is required in assigning experienced staff. 
D)  Review of audit documentation is performed by personnel not assigned to the engagement. 
A)  More evidence is accumulated. 
B)  Less evidence is accumulated. 
C)  Special care is required in assigning experienced staff. 
D)  Review of audit documentation is performed by personnel not assigned to the engagement.

Question 8

Discuss the four primary purposes of analytical procedures performed during the planning phase of an audit.

Accepted Answer

The four primary purposes of preliminary

Question 9

The major concern when using nonfinancial data in analytical procedures is the:

Accepted Answer

A)  accuracy of the nonfinancial data. 
B)  source of the nonfinancial data. 
C)  type of nonfinancial data. 
D)  presence of multiple sources of nonfinancial data. 
A)  accuracy of the nonfinancial data. 
B)  source of the nonfinancial data. 
C)  type of nonfinancial data. 
D)  presence of multiple sources of nonfinancial data.

Question 10

Which of the following would not be classified as an analytical procedure?

Accepted Answer

A)  Benchmarking the company's profitability ratios against others in the industry. 
B)  Variance analysis of actual versus budgeted amounts for production. 
C)  Reperforming the client's depreciation expense using the client's accounting policies for capital expenditures made during the year. 
D)  Reconciling fixed asset dispositions with the fixed asset ledger . 
A)  Benchmarking the company's profitability ratios against others in the industry. 
B)  Variance analysis of actual versus budgeted amounts for production. 
C)  Reperforming the client's depreciation expense using the client's accounting policies for capital expenditures made during the year. 
D)  Reconciling fixed asset dispositions with the fixed asset ledger .

Question 11

Discuss the required communications between predecessor and successor auditors.

Accepted Answer

Auditing standards require a successor a

Question 12

Discuss the primary purpose of an audit engagement letter. Is an engagement letter required?

Accepted Answer

The purpose of an audit engagement lette

Question 13

Which of the following is most correct with respect to the use of analytical procedures?

Accepted Answer

A)  Analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption. 
B)  Analytical procedures must be used throughout the audit. 
C)  Analytical procedures used in the testing phase of the audit are primarily used to direct an auditor's attention so that the auditor's understanding of the business is improved. 
D)  Analytical procedures are performed by studying plausible relationships between financial and nonfinancial data. 
A)  Analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption. 
B)  Analytical procedures must be used throughout the audit. 
C)  Analytical procedures used in the testing phase of the audit are primarily used to direct an auditor's attention so that the auditor's understanding of the business is improved. 
D)  Analytical procedures are performed by studying plausible relationships between financial and nonfinancial data.

Question 14

As acceptable audit risk is decreased, the likely cost of conducting an audit increases.

Accepted Answer

A) True 
 B)False

Question 15

An official record of meetings of the board of directors and stockholders is included in the corporate:

Accepted Answer

A)  bylaws. 
B)  charter. 
C)  minutes. 
D)  license. 
A)  bylaws. 
B)  charter. 
C)  minutes. 
D)  license.

Question 16

Ordinarily, the auditor should review corporate minutes during the later stages of an audit.

Accepted Answer

A) True 
 B)False

Question 17

The audit team gathers information about a new client's business and industry in order to obtain:

Accepted Answer

A)  an understanding of the clients internal control system for financial reporting. 
B)  an understanding of how economic events and transactions have an effect on the company's financial statements. 
C)  information about engagement risk. 
D)  information regarding whether the company is engaging in financial statement fraud. 
A)  an understanding of the clients internal control system for financial reporting. 
B)  an understanding of how economic events and transactions have an effect on the company's financial statements. 
C)  information about engagement risk. 
D)  information regarding whether the company is engaging in financial statement fraud.

Question 18

Initial audit planning involves four matters. Which of the following is not one of these?

Accepted Answer

A)  Develop an overall audit strategy. 
B)  Request that bank balances be confirmed. 
C)  Schedule engagement staff and audit specialists. 
D)  Identify the client's reason for the audit. 
A)  Develop an overall audit strategy. 
B)  Request that bank balances be confirmed. 
C)  Schedule engagement staff and audit specialists. 
D)  Identify the client's reason for the audit.

Question 19

For prospective clients that have previously been audited by another CPA firm, the predecessor auditor is required to communicate with the successor auditor.

Accepted Answer

A) True 
 B)False

Question 20

A written understanding detailing what the auditors will do in determining if the financial statements are fair representations of the company's financial statements and what the auditor expects from the client in performing an audit will normally be expressed in the:

Accepted Answer

A)  management letter requested by the auditor. 
B)  engagement letter. 
C)  Audit Plan. 
D)  Audit Strategy for the client. 
A)  management letter requested by the auditor. 
B)  engagement letter. 
C)  Audit Plan. 
D)  Audit Strategy for the client.

Exam 8: Audit Planning and Analytical Procedures

Which is usually included in an engagement letter?

Which of the following best describes the coporate minutes of an entity?

A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called:

When inherent risk is high, there will need to be:

What are three factors that have increased the importance of obtaining an understanding of a client's business and industry? How can an auditor obtain this understanding?

Which of the following is not correct regarding an auditor's decision that a lower acceptable audit risk is appropriate?

Discuss the four primary purposes of analytical procedures performed during the planning phase of an audit.

The major concern when using nonfinancial data in analytical procedures is the:

Which of the following would not be classified as an analytical procedure?

Discuss the required communications between predecessor and successor auditors.

Discuss the primary purpose of an audit engagement letter. Is an engagement letter required?

Which of the following is most correct with respect to the use of analytical procedures?

As acceptable audit risk is decreased, the likely cost of conducting an audit increases.

An official record of meetings of the board of directors and stockholders is included in the corporate:

Ordinarily, the auditor should review corporate minutes during the later stages of an audit.

The audit team gathers information about a new client's business and industry in order to obtain:

Initial audit planning involves four matters. Which of the following is not one of these?

For prospective clients that have previously been audited by another CPA firm, the predecessor auditor is required to communicate with the successor auditor.

A written understanding detailing what the auditors will do in determining if the financial statements are fair representations of the company's financial statements and what the auditor expects from the client in performing an audit will normally be expressed in the:

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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