Question 1

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

Accepted Answer

A) An inadequate understanding of the entity's internal controls. 
B) The close proximity to the end of the entity's fiscal year. 
C) Concluding that the entity's management probably lacks integrity. 
D) The inability to perform preliminary analytical procedures before assessing control risk. 
A) An inadequate understanding of the entity's internal controls. 
B) The close proximity to the end of the entity's fiscal year. 
C) Concluding that the entity's management probably lacks integrity. 
D) The inability to perform preliminary analytical procedures before assessing control risk. C

Question 2

During a financial statement audit an internal auditor may provide direct assistance to the independent CPA in performing. $\begin{array}{lc}\text { Tests of controls}&\text { Substantive Test:}\\end{array}$
A.$\begin{array}{lc}
&&\text { Yes } & &&&&&\text { Yes } \\end{array}$
B.$\begin{array}{lc}&&\text { Yes } &&&&&& \text { No } \\end{array}$
C.$\begin{array}{lc}&&\text { No } &&&&&& \text { Yes }\\end{array}$
D.$\begin{array}{lc}&&\text { No } &&&&&& \text { No }
\end{array}$

Accepted Answer

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

Question 3

Which of the following is not a category of audit documentation?

Accepted Answer

A) Temporary files. 
B) Permanent files. 
C) Audit administrative files. 
D) Current documentation files. 
A) Temporary files. 
B) Permanent files. 
C) Audit administrative files. 
D) Current documentation files. A

Question 4

For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective?

Accepted Answer

A) Assessment of inherent risk, yes; assessment of control risk, yes. 
B) Assessment of inherent risk, yes; assessment of control risk, no. 
C) Assessment of inherent risk, no; assessment of control risk, yes. 
D) Assessment of inherent risk, no; assessment of control risk, no. 
A) Assessment of inherent risk, yes; assessment of control risk, yes. 
B) Assessment of inherent risk, yes; assessment of control risk, no. 
C) Assessment of inherent risk, no; assessment of control risk, yes. 
D) Assessment of inherent risk, no; assessment of control risk, no.

Question 5

In considering overall materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have a material effect on an entity's income statement but that misstatements would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design audit procedures that would be expected to detect misstatements aggregating:

Accepted Answer

A) $10,000. 
B) $15,000. 
C) $20,000. 
D) $30,000. 
A) $10,000. 
B) $15,000. 
C) $20,000. 
D) $30,000.

Question 6

In testing the completeness assertion for a liability account, an auditor ordinarily works from the:

Accepted Answer

A) financial statements to the potentially unrecorded items. 
B) potentially unrecorded items to the financial statements. 
C) accounting records to the supporting evidence. 
D) trial balance to the subsidiary ledger. 
A) financial statements to the potentially unrecorded items. 
B) potentially unrecorded items to the financial statements. 
C) accounting records to the supporting evidence. 
D) trial balance to the subsidiary ledger.

Question 7

In auditing accrued liabilities, an auditor's procedures most likely would focus primarily on management's assertion of:

Accepted Answer

A) existence or occurrence. 
B) completeness. 
C) presentation and disclosure. 
D) valuation or allocation. 
A) existence or occurrence. 
B) completeness. 
C) presentation and disclosure. 
D) valuation or allocation.

Question 8

Identify the two types of audit plans and indicate the purpose of each.

Accepted Answer

The two types of audit plans are (1) the

Question 9

To satisfy the valuation assertion when auditing an investment in another company that is publicly and actively traded, an auditor most likely would seek to:

Accepted Answer

A) inspect the stock certificates evidencing the investment. 
B) examine the audited financial statements of the investee company. 
C) review the broker's advice or canceled check for the investment's acquisition. 
D) obtain market quotations from The Wall Street Journal or another independent source. 
A) inspect the stock certificates evidencing the investment. 
B) examine the audited financial statements of the investee company. 
C) review the broker's advice or canceled check for the investment's acquisition. 
D) obtain market quotations from The Wall Street Journal or another independent source.

Question 10

The confirmation of an accounts receivable balance provides primary evidence regarding which management assertion?

Accepted Answer

A) Completeness. 
B) Valuation. 
C) Allocation. 
D) Existence. 
A) Completeness. 
B) Valuation. 
C) Allocation. 
D) Existence.

Question 11

Which of the following factors should an external auditor obtain updated information about when assessing an internal auditor's competence?

Accepted Answer

A) The reporting status of the internal auditor within the organization. 
B) The educational level and professional experiences of the internal auditor. 
C) Whether policies prohibit the internal auditor from auditing areas where relatives are employed. 
D) Whether the board of directors, audit committee, or owner-manager oversees employment decisions related to the internal auditor. 
A) The reporting status of the internal auditor within the organization. 
B) The educational level and professional experiences of the internal auditor. 
C) Whether policies prohibit the internal auditor from auditing areas where relatives are employed. 
D) Whether the board of directors, audit committee, or owner-manager oversees employment decisions related to the internal auditor.

Question 12

Auditors should design the written audit plan so that:

Accepted Answer

A) all material transactions will be selected for substantive testing. 
B) substantive tests prior to the balance sheet date will be minimized. 
C) the audit procedures selected will achieve specific audit objectives. 
D) each account balance will be tested under either tests of controls or tests of transactions. 
A) all material transactions will be selected for substantive testing. 
B) substantive tests prior to the balance sheet date will be minimized. 
C) the audit procedures selected will achieve specific audit objectives. 
D) each account balance will be tested under either tests of controls or tests of transactions.

Question 13

Which of the following would be a step in an internal control program?

Accepted Answer

A) Obtain an aged trial balance of the accounts receivable. 
B) Prepare and send confirmations on a sample of customers' accounts receivable. 
C) Assess the control risk for sales and collections. 
D) Read sales contracts for evidence of customers' rights of return or price allowance terms. 
A) Obtain an aged trial balance of the accounts receivable. 
B) Prepare and send confirmations on a sample of customers' accounts receivable. 
C) Assess the control risk for sales and collections. 
D) Read sales contracts for evidence of customers' rights of return or price allowance terms.

Question 14

The idea of the cycle approach is to group accounts together by:

Accepted Answer

A) specific function. 
B) financial statement assertion. 
C) audit objective. 
D) transactions that affect all accounts in that particular group. 
A) specific function. 
B) financial statement assertion. 
C) audit objective. 
D) transactions that affect all accounts in that particular group.

Question 15

Which of the following is not one of the four major cycles?

Accepted Answer

A) Revenue and cash collection. 
B) Acquisition and expenditure. 
C) Cash receipts and disbursements. 
D) Financing and investing. 
A) Revenue and cash collection. 
B) Acquisition and expenditure. 
C) Cash receipts and disbursements. 
D) Financing and investing.

Question 16

D. Jackson, CPA, audited Washington Company's financial statements for the year ended December 31, 2017. On November 1, 2018, Washington notified Jackson that it was changing auditors and that Jackson's services were being terminated. On November 5, 2018, Washington invited Lincoln, CPA, to make a proposal for an engagement to audit its financial statements for the year ended December 31, 2018.Required:What procedures concerning Jackson should Lincoln perform before accepting the engagement?

Accepted Answer

Lincoln should explain to Washington the

Question 17

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

Accepted Answer

A) an assessment of fraud risk factors likely to cause material misstatements. 
B) an understanding of the prospective client's industry and business. 
C) the prospective client's signature to a written engagement letter. 
D) the prospective client's consent to make inquiries of the predecessor, if any. 
A) an assessment of fraud risk factors likely to cause material misstatements. 
B) an understanding of the prospective client's industry and business. 
C) the prospective client's signature to a written engagement letter. 
D) the prospective client's consent to make inquiries of the predecessor, if any.

Question 18

During the initial planning phase of an audit, a CPA most likely would:

Accepted Answer

A) test specific internal control activities that are likely to prevent fraud. 
B) evaluate the reasonableness of the client's accounting estimates of inventory obsolescence. 
C) discuss the timing of the audit procedures with the client's management. 
D) inquire of the client's attorney as to whether any unrecorded claims are probable of assertion. 
A) test specific internal control activities that are likely to prevent fraud. 
B) evaluate the reasonableness of the client's accounting estimates of inventory obsolescence. 
C) discuss the timing of the audit procedures with the client's management. 
D) inquire of the client's attorney as to whether any unrecorded claims are probable of assertion.

Question 19

C. Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was K. Post, CPA, whom Monday has notified by that its services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post?

Accepted Answer

A) Hill, the auditor. 
B) Post, the predecessor auditor. 
C) Monday's controller or CFO. 
D) The chair of Monday's board of directors. 
A) Hill, the auditor. 
B) Post, the predecessor auditor. 
C) Monday's controller or CFO. 
D) The chair of Monday's board of directors.

Question 20

When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?

Accepted Answer

A) Considering unaudited account balances and ratios to calculate what adjusted balances should be. 
B) Identifying reasonable explanations for unexpected differences before talking to client management. 
C) Considering the pattern of several unusual changes without trying to explain what caused them. 
D) Comparing client data with client-determined expected results to reduce detailed tests of account balances. 
A) Considering unaudited account balances and ratios to calculate what adjusted balances should be. 
B) Identifying reasonable explanations for unexpected differences before talking to client management. 
C) Considering the pattern of several unusual changes without trying to explain what caused them. 
D) Comparing client data with client-determined expected results to reduce detailed tests of account balances.

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

During a financial statement audit an internal auditor may provide direct assistance to the independent CPA in performing. Tests of controls Substantive Test: A. Yes Yes B. Yes No C. No Yes D. No No

Which of the following is not a category of audit documentation?

For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective?

In testing the completeness assertion for a liability account, an auditor ordinarily works from the:

In auditing accrued liabilities, an auditor's procedures most likely would focus primarily on management's assertion of:

Identify the two types of audit plans and indicate the purpose of each.

To satisfy the valuation assertion when auditing an investment in another company that is publicly and actively traded, an auditor most likely would seek to:

The confirmation of an accounts receivable balance provides primary evidence regarding which management assertion?

Which of the following factors should an external auditor obtain updated information about when assessing an internal auditor's competence?

Auditors should design the written audit plan so that:

Which of the following would be a step in an internal control program?

The idea of the cycle approach is to group accounts together by:

Which of the following is not one of the four major cycles?

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

During the initial planning phase of an audit, a CPA most likely would:

C. Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was K. Post, CPA, whom Monday has notified by that its services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post?

When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?

Auditing and Assurance Services

Professional Standards

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash 227

Revenue and Collection Cycle 279

Acquisition and Expenditure Cycle 336

Production Cycle 394

Finance and Investment Cycle 443

Completing the Audit 500

Reports on Audited Financial Statements

Filters

Exam 3: Engagement Planning

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

During a financial statement audit an internal auditor may provide direct assistance to the independent CPA in performing. Tests of controls Substantive Test: A. Yes Yes B. Yes No C. No Yes D. No No

Which of the following is not a category of audit documentation?

For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective?

In testing the completeness assertion for a liability account, an auditor ordinarily works from the:

In auditing accrued liabilities, an auditor's procedures most likely would focus primarily on management's assertion of:

Identify the two types of audit plans and indicate the purpose of each.

To satisfy the valuation assertion when auditing an investment in another company that is publicly and actively traded, an auditor most likely would seek to:

The confirmation of an accounts receivable balance provides primary evidence regarding which management assertion?

Which of the following factors should an external auditor obtain updated information about when assessing an internal auditor's competence?

Auditors should design the written audit plan so that:

Which of the following would be a step in an internal control program?

The idea of the cycle approach is to group accounts together by:

Which of the following is not one of the four major cycles?

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

During the initial planning phase of an audit, a CPA most likely would:

C. Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was K. Post, CPA, whom Monday has notified by that its services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post?

When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?

Auditing and Assurance Services

Professional Standards

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash 227

Revenue and Collection Cycle 279

Acquisition and Expenditure Cycle 336

Production Cycle 394

Finance and Investment Cycle 443

Completing the Audit 500

Reports on Audited Financial Statements

Filters