Question 1

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.

Question 2

The audit committee is directly responsible for the appointment,compensation,and oversight of the work of any accounting firm employed by a public company.

Accepted Answer

A) True 
 B)False

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

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 5

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

Accepted Answer

A)  Management's responsibility for the entity's compliance with laws and regulations. 
B)  The factors to be considered in setting preliminary judgments about materiality. 
C)  Management's liability for illegal acts committed by its employees. 
D)  The auditor's responsibility to guarantee accuracy of the financial statements.

Question 6

Often in an audit,total combined tolerable misstatement is greater than overall materiality.Why is this the case?

Accepted Answer

The answer of Often in an audit,total combined tolerable misstatement...

Question 7

In the context of an audit of financial statements,substantive procedures are audit procedures that

Accepted Answer

A)  May be eliminated under certain conditions. 
B)  Are primarily designed to discover significant subsequent events. 
C)  May be either tests of details of transactions, tests of details of account balances, or analytical procedures. 
D)  Will increase proportionately with an increase in the auditor's reliance on internal control.

Question 8

Which of the following statements is not correct about materiality?

Accepted Answer

A)  The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important. 
B)  An auditor considers materiality for the aggregate level of misstatements that could be material to any one of the financial statements individually. 
C)  Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. 
D)  An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements.

Question 9

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.

Question 10

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

Accepted Answer

A)  The prospective client's unwillingness to permit inquiry of its legal counsel. 
B)  The inability to review the predecessor auditor's documentation. 
C)  The CPA's lack of understanding of the prospective client's operations and industry. 
D)  Indications that management has not investigated employees in key positions before hiring them.

Question 11

A dual-purpose test

Accepted Answer

A)  Simultaneously tests debits and credits. 
B)  Is a procedure completed by both the internal and external auditors. 
C)  Is useful to both the entity and the auditor. 
D)  Is both a substantive test of transactions and a test of controls.

Question 12

The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants

Accepted Answer

A)  That immaterial fraud is not to be reported to the client's audit committee. 
B)  How the results of various auditing procedures performed by the assistants should be evaluated. 
C)  How the overall audit strategy will allow the firm to reach a sufficiently low level of audit risk. 
D)  How overall materiality was selected.

Question 13

Which of the following is a general audit test?

Accepted Answer

A)  Fee assessment procedures. 
B)  Tests of controls. 
C)  Preparation of corporate tax returns. 
D)  Active testing procedures.

Question 14

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

Accepted Answer

A)  Potential for fraud. 
B)  The company is close to violating loan covenants. 
C)  Firm policy sets materiality at 4% of pretax income. 
D)  A small misstatement would interrupt an earnings trend.

Question 15

Before accepting an engagement to audit a new client,a CPA is required to obtain

Accepted Answer

A)  An understanding of the prospective client's industry and business. 
B)  The prospective client's signature on the engagement letter. 
C)  A preliminary understanding of the prospective client's control environment. 
D)  The prospective client's consent to make inquiries of the predecessor auditor.

Question 16

When the prospective client has previously been audited,auditing standards require that the successor auditor make certain inquiries of the predecessor auditor before accepting the engagement.

Accepted Answer

A) True 
 B)False

Question 17

If the internal audit function is competent and objective,the auditor may generally rely on the work of an internal audit function in certain areas to reduce the amount of external audit work in these areas.

Accepted Answer

A) True 
 B)False

Question 18

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.

Question 19

All of the following refer to the competence of the internal audit function except:

Accepted Answer

A)  The party in the entity to which the internal audit function reports. 
B)  The quality of internal audit documents and reports. 
C)  Professional certification. 
D)  Supervision and review of internal audit activities.

Question 20

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.

Exam 3: Audit Planning, Types of Audit Tests, and Materiality

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?

The audit committee is directly responsible for the appointment,compensation,and oversight of the work of any accounting firm employed by a public company.

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

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

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

Often in an audit,total combined tolerable misstatement is greater than overall materiality.Why is this the case?

In the context of an audit of financial statements,substantive procedures are audit procedures that

Which of the following statements is not correct about materiality?

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

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

A dual-purpose test

The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants

Which of the following is a general audit test?

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

Before accepting an engagement to audit a new client,a CPA is required to obtain

When the prospective client has previously been audited,auditing standards require that the successor auditor make certain inquiries of the predecessor auditor before accepting the engagement.

If the internal audit function is competent and objective,the auditor may generally rely on the work of an internal audit function in certain areas to reduce the amount of external audit work in these areas.

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

All of the following refer to the competence of the internal audit function except:

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