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During the Client Acceptance and Continuance Procedures, Auditors Strive to Gather

Question 56

Matching

During the client acceptance and continuance procedures, auditors strive to gather evidence regarding the numbered topics listed below. Match each of the following Caution Indicators with the type of information to which it most closely pertains. Each caution indicator should be used for only one topic

Premises:

Responses:

Financial Difficulty and Going Concern

marginal ability to meet debt repayment requirements

Management Integrity

unusual legal entities or managerial lines of authority

Audit Committee and Board of Directors Involvement

significant bank accounts in jurisdictions for which there appears to be no clear business justification

Performance Information

domination of management by a single person without compensating controls

Accounting Practices and Financial Disclosures

ineffective oversight over ICFR

Accounting Systems

significant related party transactions not in the ordinary course of business

Business Locations

inadequate internal control over assets that may increase the client’s susceptibility of misappropriation of those assets

Company Leadership

ineffective support of the company’s ethical standards

Organizational Structure

significant declines in customer demand accompanied by increasing business failures in the industry

Premises:

Financial Difficulty and Going Concern

Management Integrity

Audit Committee and Board of Directors Involvement

Performance Information

Accounting Practices and Financial Disclosures

Accounting Systems

Business Locations

Company Leadership

Organizational Structure

Responses:

marginal ability to meet debt repayment requirements

unusual legal entities or managerial lines of authority

significant bank accounts in jurisdictions for which there appears to be no clear business justification

domination of management by a single person without compensating controls

ineffective oversight over ICFR

significant related party transactions not in the ordinary course of business

inadequate internal control over assets that may increase the client’s susceptibility of misappropriation of those assets

ineffective support of the company’s ethical standards

significant declines in customer demand accompanied by increasing business failures in the industry

Correct Answer:

Premises:

Responses:

Financial Difficulty and Going Concern

Management Integrity

Audit Committee and Board of Directors Involvement

Performance Information

Accounting Practices and Financial Disclosures

Accounting Systems

Business Locations

Company Leadership

Organizational Structure