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- Which situation would make an accountant not accept a new audit engagement?Which of the following would most likely cause the auditor to decline to accept an audit engagement?In which of the following situations would the auditor be unlikely to send a new engagement?Which situation would likely make an accountant?
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T/F Materiality significantly impacts the auditor's decisions about how much and what kind of evidence to gather.
true
To emphasize auditor independence from management, publicly traded corporations are required to:
Multiple Choice
appoint a partner of the CPA firm conducting the examination to the corporation's audit committee.
establish a policy of discouraging social contact between employees of the corporation and the independent auditors.
request that a representative of the independent auditor be on hand the annual stockholders' meeting.
have the independent auditor report to an audit committee of independent members of the board of directors.
have the independent auditor report to an audit committee of independent members of the board of directors.
T/F Materiality is based only on a quantitative analysis of the financial statements.
false
Which of the following factors most likely would cause a CPA not to accept a new audit engagement?
Multiple Choice
The prospective client's unwillingness to permit inquiry of its legal counsel.
The inability to review the predecessor auditor's documentation.
The CPA's lack of understanding of the prospective client's operations and industry.
Indications that management has not investigated employees in key positions before hiring them.
The prospective client's unwillingness to permit inquiry of its legal counsel.
t/f In order to properly preplan the audit, the auditor must determine the engagement team requirements and ensure the independence of the audit team and audit firm.
true
Which of the following is an example of a related party transaction?
Multiple Choice
An action is taken by the directors of Company A to provide additional compensation for vice presidents in charge of the principal business functions of Company A.
A long-term agreement is made by Company A to provide merchandise or services to Company B, a long-time, friendly competitor.
A short-term loan is granted to Company A by a bank that has a depositor who is a thành viên of the board of directors of Company A.
A nonmonetary exchange occurs whereby Company A exchanges property for similar property owned by Company B, an unconsolidated subsidiary of Company A.
A nonmonetary exchange occurs whereby Company A exchanges property for similar property owned by Company B, an unconsolidated subsidiary of Company A.
In the context of an audit of
financial statements, substantive procedures are audit procedures that:
Multiple Choice
may be eliminated under certain conditions.
are primarily designed to discover significant subsequent events.
may be either tests of details of transactions, tests of details of account balances, or analytical procedures.
will increase proportionately with an increase in the auditor's reliance on internal control.
may be either tests of details of transactions, tests of details of account balances, or analytical procedures.
T/F With few exceptions, the Code of Professional Conduct does not allow an auditor to disclose confidential client information without the client's consent.
TRUE
A dual-purpose test:
Multiple Choice
simultaneously tests debits and credits.
is a procedure completed by both the internal and external auditors.
is useful to both the entity and the auditor.
is both a substantive test of transactions and a test of controls.
is both a substantive test of transactions and a test of controls.
Which of the following situations would most likely require special audit planning?
Multiple Choice
Some items of factory and office equipment do not bear identification numbers.
Depreciation methods used on the client's tax return differ from those used on the books.
Assets costing less than $500 are expensed even though the expected life exceeds one year.
Inventory is comprised of precious stones.
Inventory is comprised of precious stones.
Which of the following is not an audit procedure that is commonly used in performing tests of controls?
Multiple
Choice
Inquiring.
Observing.
Confirming.
Inspecting.
Confirming
Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?
Multiple Choice
Analysis of balance sheet accounts.
Analysis of income statement accounts.
All matters of continuing accounting significance.
Facts that might bear on management integrity.
Facts that might bear on management integrity.
Which of the following would not necessarily be a related party transaction?
Multiple Choice
Sales to another corporation with a similar name.
Purchases from another corporation that is controlled by the corporation's chief stockholder.
Loan from the corporation to a major stockholder.
Sale of land to the corporation by the spouse of a director.
Sales to another corporation with a similar name.
An auditor who discovers that a client's employees paid small bribes to municipal officials most likely would withdraw from the engagement if:
Multiple Choice
the payments violated the client's policies regarding the prevention of illegal acts.
the client receives financial assistance from a federal government agency.
documentation that is necessary to prove that the bribes were paid does not exist.
management fails to take the appropriate remedial action.
management fails to take the appropriate remedial action.
Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?
Multiple Choice
Perform detailed testing of the individual balance sheet accounts.
Examining documents to detect illegal acts having a material effect on the financial statements.
Considering whether the client's accounting estimates are reasonable in the circumstances.
Determining the extent of involvement of the client's internal audit function.
Determining the extent of involvement of the client's internal audit function
The audit client's board of directors and audit
committee refused to take any action with respect to an immaterial illegal act which was brought to their attention by the auditor. Because of their failure to act, the auditor withdrew from the engagement. The auditor's decision to withdraw was primarily due to doubts concerning:
Multiple Choice
adequate financial statement disclosures.
compliance with the statutory laws and regulations.
scope limitations resulting from their inaction.
the integrity of management.
the integrity of the management
T/F The audit committee is directly responsible for the appointment, compensation, and oversight of the work of any accounting firm employed by a public company.
true
T/F The external auditor is required to make a number of important communications to the audit committee during or the end of the audit engagement.
true
A written understanding between the auditor and the client concerning the auditor's responsibility for the discovery of illegal acts is usually set forth in a(n):
Multiple Choice
client representation letter.
letter of audit inquiry.
management letter.
engagement letter.
engagement letter
Before
accepting an engagement to audit a new client, a CPA is required to obtain:
Multiple Choice
an understanding of the prospective client's industry and business.
the prospective client's signature on the engagement letter.
a preliminary understanding of the prospective client's control environment.
the prospective client's consent to make inquiries of the predecessor auditor.
the prospective client's consent to make inquiries of the predecessor auditor.
T/F All companies must have an audit committee.
false
T/F There are five general types of audit tests.
false
Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?
Multiple Choice
The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques.
Management's disregard of its responsibility to maintain an adequate control environment.
The CPA's inability to determine whether related party transactions were consummated on terms equivalent to arm's-length transactions.
Management's refusal to permit the CPA to perform substantive procedures before the year-end.
Management's disregard of its responsibility to maintain an adequate control environment.
Which of the following procedures would an auditor most likely include in the initial planning of an examination of financial statements?
Multiple Choice
Assess the need for the use of specialists in the audit.
Inquiring of the client's attorney as to any claims that are likely to be asserted.
Perform detailed testing of the individual financial statement accounts.
Determining whether necessary internal controls procedures are being applied as prescribed.
Assess the need for the use of specialists in the audit.
Evaluating a prospective client requires which of the following steps?
Multiple Choice
Communicate with the SEC.
Preplan the audit.
Determine if the firm is independent of the client.
Communicate with the AICPA.
Determine if the firm is independent of the client.
Which of the following relatively small misstatements most likely would have a material effect on an entity's financial statements?
Multiple Choice
An illegal payment to a foreign official that was not recorded.
A piece of obsolete office equipment that was not retired.
A petty cash fund disbursement that was not properly authorized.
An uncollectible account receivable that was not written-off.
An illegal payment to a foreign official that was not recorded.
T/F Materiality significantly impacts the auditor's decisions about how much and what kind of evidence to gather.
TRUE
Which of the following is the most important qualitative factor that auditors should consider when making
materiality judgments?
Multiple Choice
A misstatement exceeded five percent of net income.
The auditor also provides consulting services to the audit client.
The misstatement will cause the client to fail to meet an earnings forecast.
The audit committee is not well-educated about the accounting principle in question.
The misstatement will cause the client to fail to meet an earnings forecast.
Tolerable
misstatement is:
Multiple Choice
materiality allocated to an assertion.
materiality for the balance sheet as a whole.
materiality for the income statement as a whole.
materiality allocated to a specific account.
materiality allocated to a specific account.
T/F The external auditor is required to make a number of important communications to the audit committee during or the end of the audit engagement.
TRUE
An independent auditor might consider the procedures performed by the internal audit function because:
Multiple Choice
they are employees whose work must be reviewed during substantive testing.
they are employees whose work might be relied upon.
their work impacts the cost/benefit tradeoff in evaluating inherent limitations.
their degree of independence may be inferred by the nature of their work.
they are employees whose work might be relied upon.
Engagement letters include all of the following except:
Multiple Choice
a list of additional services that will be provided.
a list of adjusting journal entries.
information about the audit fee.
arrangements involving the use of specialists
a list of adjusting journal entries.
As generally conceived, the audit committee of a publicly held company should be made up of:
Multiple Choice
representatives of the major equity interests (preferred stock, common stock).
the audit partner, the chief financial officer, the legal counsel, and least one outsider.
representatives from the client's management, investors, suppliers, and customers.
members of the board of directors who are not officers or employees.
members of the board of directors who are not officers or employees.
Under the Sarbanes-Oxley Act, the audit committee of a public company has the following requirement(s):
Multiple Choice
each thành viên of the committee must be a board thành viên and shall be independent.
the audit committee must preapprove all audit and nonaudit services.
the audit committee must establish and maintain procedures to handle all issues that relate to accounting, internal control, and auditing.
All of these.
all of these
The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the:
Multiple Choice
methods of statistical sampling to be used in confirming accounts receivable.
pending legal matters to be included in the inquiry of the client's attorney.
evidence to be gathered to provide a sufficient basis for the auditor's opinion.
timing of the audit.
timing of the audit.
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?
Multiple Choice
Reading "conflict-of-interest" statements obtained by the client from its management.
Scanning accounting records for large transactions or just prior to the end of the period under audit.
Reading minutes of the Board of Directors meetings for authorization or discussion of material transactions.
Confirming purchases and sales transactions with the vendors and/or customers involved.
Confirming purchases and sales transactions with the vendors and/or customers involved.
Which of the following factors most likely would cause a CPA not to accept a new audit engagement?
Multiple Choice
The prospective client's unwillingness to permit inquiry of its legal counsel.
The inability to review the predecessor auditor's documentation.
The CPA's lack of understanding of the prospective client's operations and industry.
Indications that management has not investigated employees in key positions before hiring them
The prospective client's unwillingness to permit inquiry of its legal counsel.
All of the following refer to the competence of the internal audit function except:
Multiple Choice
the party in the entity to which the internal audit function reports.
the quality of internal audit documents and reports.
professional certification.
supervision and review of internal audit activities.
the party in the entity to which the internal audit function reports.
An entity's financial statements were misstated over a period of years due to large amounts of revenue being recorded in journal entries that involved debits and credits to an illogical combination of accounts. The auditor could most likely have been alerted to this fraud by:
Multiple Choice
scanning the general journal for unusual entries.
performing a revenue cutoff test year-end.
tracing a sample of journal entries to the general ledger.
examining documentary evidence of sales returns and allowances recorded after year-end.
scanning the general journal for unusual entries.
T/F The engagement partner is typically responsible for doing the detailed audit testing.
FALSE
The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants:
Multiple Choice
that immaterial fraud is not to be reported to the client's audit committee.
how the results of various auditing procedures performed by the assistants should be evaluated.
how the overall audit strategy will allow the firm to reach a sufficiently low level of audit risk.
how overall materiality was selected.
how the results of various auditing procedures performed by the assistants should be evaluated.
T/F In order to properly preplan the audit, the auditor must determine the engagement team requirements and ensure the independence of the audit team and audit firm.
TRUE
Which element(s) is/are
pervasive to the application of the Principles Underlying an Audit Conducted in Accordance with GAAS particularly the Performance and Reporting sections?
Multiple Choice
The elements of materiality and audit risk.
The element of internal control.
The element of corroborating evidence.
The element of reasonable assurance.
The elements of materiality and audit risk.
Which of the
following is a general audit test?
Multiple Choice
Fee assessment procedures.
Tests of controls.
Preparation of corporate tax returns.
Active testing procedurES
tests of controls
An auditor is required to establish an understanding with a client regarding the responsibilities for each engagement. This understanding generally includes:
Multiple Choice
management's responsibility to guarantee that there are no material misstatements due to fraud.
the auditor's responsibility to plan and perform the audit to provide reasonable, but not absolute, assurance of detecting material errors or fraud.
management's responsibility for providing the auditor with an assessment of the risk of material misstatement due to fraud.
the auditor's responsibility for the fairness of the financial statements.
the auditor's responsibility to plan and perform the audit to provide reasonable, but not absolute, assurance of detecting material errors or fraud.
The existence of a related party transaction may be indicated when another entity:
Multiple Choice
sells real estate to the corporation a price that is comparable to its appraised value.
absorbs expenses of the corporation under audit.
borrows from the corporation a rate of interest which equals the current market rate.
lends to the corporation a rate of interest which equals the current market rate.
absorbs expenses of the corporation under audit.
An auditor obtains knowledge about a new client's business and its industry in order to:
Multiple Choice
make constructive suggestions concerning improvements to the client's internal control.
develop an attitude of professional skepticism concerning management's financial statement assertions.
evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated.
understand the events and transactions that may have an effect on the client's financial statements.
understand the events and transactions that may have an effect on the client's financial statements.
When a
CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:
Multiple Choice
whether the predecessor's work should be utilized.
whether, in the predecessor's opinion, the financial statements are materially correct.
whether, in the predecessor's opinion, the company's internal controls have been satisfactory.
whether the engagement should be accepted.
whether the engagement should be accepted.
Item 9Item 9
During the initial planning phase of an audit, a CPA most likely would:
Multiple Choice
identify specific internal control activities that are likely to prevent fraud.
evaluate the reasonableness of the client's accounting estimates.
discuss the timing of the audit procedures with the client's management.
inquire of the client's attorney as to any unrecorded claims.
discuss the timing of the audit procedures with the client's management.
Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?
Multiple Choice
Potential for fraud.
The company is close to violating loan covenants.
Firm policy sets materiality 4% of pretax income.
A small misstatement would interrupt an earnings trend.
Firm policy sets materiality 4% of pretax income.
Evaluating a prospective client requires which of the following steps?
Multiple Choice
Communicate with the predecessor auditor.
Preplan the audit.
Establish the terms of the engagement.
None of these.
Communicate with the predecessor auditor.
T/F The first phase of audit planning is risk assessment.
FALSE
T/F 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
TRUE
Which situation would make an accountant not accept a new audit engagement?
Auditor shall not accept an audit engagement if the management imposes any limitation on the scope which will result in the auditor disclaiming an opinion on the financial statements, unless required by law or regulation to do so.Which of the following would most likely cause the auditor to decline to accept an audit engagement?
Which of the following factors most likely would cause an auditor to decline a new audit engagement? Failure of management to satisfy the preconditions for an audit.In which of the following situations would the auditor be unlikely to send a new engagement?
Question 2 Assuming the recurring audit, in which of the following situations would the auditor be unlikely to send a new engagement letter to the client? A recent change partner and/ or staff involved in the audit engagement.Which situation would likely make an accountant?
a) an accountant's lack of understanding of the entity's operations and industry b) an accountant's inability to review the predecessor auditor's working papers c) management's reputation for failing to provide schedules to prior auditors on a timely basis d) management's. Tải thêm tài liệu liên quan đến nội dung bài viết Which situation would likely make an accountant not accept a new audit engagement quizlet?
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