Question 1

Related party transactions may be indicated when another company:

Accepted Answer

A)  Subsidizes certain operating expenses of the company 
B)  Purchases its securities at their fair value 
C)  Loans to company at market rates 
D)  Has had a distributor relationship with the company for 10 years

Question 2

Auditors should obtain copies of the client's code of ethics and minutes of the meetings of the board of directors to aid in their understanding of the company's management and governance structure.

Accepted Answer

A) True 
 B)False

Question 3

What documents do auditors routinely obtain to aid in their understanding of a client's governance system? Briefly discuss each of these documents.

Accepted Answer

The answer of What documents do auditors routinely obtain to...

Question 4

When a successor auditor requests information from a company's previous auditor, and there are legal problems or disputes between the client and the predecessor auditor, the predecessor auditor's response to the new auditor may be limited to stating that no information will be provided.

Accepted Answer

A) True 
 B)False

Question 5

Inherent risks typically vary across industries.

Accepted Answer

A) True 
 B)False

Question 6

Acceptable audit risk is a measure of the auditor's willingness to accept that the financial statements do not contain material misstatements after the audit is completed and a qualified audit report has been issued.

Accepted Answer

A) True 
 B)False

Question 7

Jennings and Company has repositioned the firm's business strategy from the basis of competing on costs to competing on product differentiation. All the following will increase, except:

Accepted Answer

A)  Audit risk. 
B)  Business Risk. 
C)  Financial risk. 
D)  Risk of Material Misstatements.

Question 8

Define business risk. List several factors that may impact the auditor's assessment of business risk.

Accepted Answer

The answer of Define business risk. List several factors that...

Question 9

Transactions with related parties must be disclosed in the financial statements if they are deemed to be material.

Accepted Answer

A) True 
 B)False

Question 10

Which is usually included in the engagement letter?

Accepted Answer

A)   
B)   
C)   
D)

Question 11

In making client acceptance decisions the audit firm will consider:

Accepted Answer

A)  inherent and control risk of the client. 
B)  audit risk to the CPA Firm. 
C)  the client's business risk and the CPA Firm's engagement risk. 
D)  CPA Firm's potential ongoing revenue from the audit client.

Question 12

Discuss the factors an auditor should consider before accepting a company as an audit client.

Accepted Answer

The answer of Discuss the factors an auditor should consider...

Question 13

Which is usually included in an engagement letter?

Accepted Answer

A)   
B)   
C)   
D)

Question 14

Which of the following statements is true regarding communications between predecessor and successor auditors?

Accepted Answer

A)  The burden of initiating the communication rests with the predecessor. 
B)  The predecessor's response can be limited to stating that no information will be provided. 
C)  The predecessor should communicate with the successor only if the client is public. 
D)  There must be communication between the predecessor and successor if the successor is to accept the engagement.

Question 15

Whenever an auditor compares client data to client-prepared budgets, there are two special concerns. Indicate if the two items below are concerns.

Accepted Answer

A)   
B)   
C)   
D)

Question 16

In what order should the following steps occur?
A. assess client business risk
B. understand the client's business and industry
C. perform preliminary analytical procedures
D. assess acceptable audit risk

Accepted Answer

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

Question 17

If an auditor is requested to perform nonaudit services for a public company audit client, who is responsible for agreeing to those services with the audit firm?

Accepted Answer

A)  the client's management 
B)  the client's chief executive officer 
C)  the client's chief financial officer 
D)  the client's audit committee

Question 18

Two categories of audit-relevant information found in corporate code of ethics are authorizations and discussions of matters affecting inherent risk.

Accepted Answer

A) True 
 B)False

Question 19

There are three main reasons why an auditor should properly plan audit engagements. Discuss each of these reasons.

Accepted Answer

The answer of There are three main reasons why an...

Question 20

The purpose of an engagement letter is to:

Accepted Answer

A)  document the CPA firm's responsibility to external users of the audited financial statements. 
B)  document the terms of the engagement. 
C)  notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated. 
D)  emphasize management's responsibility for approving the audit program.

Exam 8: Audit Planning and Analytical Procedures

Related party transactions may be indicated when another company:

Auditors should obtain copies of the client's code of ethics and minutes of the meetings of the board of directors to aid in their understanding of the company's management and governance structure.

What documents do auditors routinely obtain to aid in their understanding of a client's governance system? Briefly discuss each of these documents.

When a successor auditor requests information from a company's previous auditor, and there are legal problems or disputes between the client and the predecessor auditor, the predecessor auditor's response to the new auditor may be limited to stating that no information will be provided.

Inherent risks typically vary across industries.

Acceptable audit risk is a measure of the auditor's willingness to accept that the financial statements do not contain material misstatements after the audit is completed and a qualified audit report has been issued.

Jennings and Company has repositioned the firm's business strategy from the basis of competing on costs to competing on product differentiation. All the following will increase, except:

Define business risk. List several factors that may impact the auditor's assessment of business risk.

Transactions with related parties must be disclosed in the financial statements if they are deemed to be material.

Which is usually included in the engagement letter?

In making client acceptance decisions the audit firm will consider:

Discuss the factors an auditor should consider before accepting a company as an audit client.

Which is usually included in an engagement letter?

Which of the following statements is true regarding communications between predecessor and successor auditors?

Whenever an auditor compares client data to client-prepared budgets, there are two special concerns. Indicate if the two items below are concerns.

In what order should the following steps occur? A. assess client business risk B. understand the client's business and industry C. perform preliminary analytical procedures D. assess acceptable audit risk

If an auditor is requested to perform nonaudit services for a public company audit client, who is responsible for agreeing to those services with the audit firm?

Two categories of audit-relevant information found in corporate code of ethics are authorizations and discussions of matters affecting inherent risk.

There are three main reasons why an auditor should properly plan audit engagements. Discuss each of these reasons.

The purpose of an engagement letter is to: