Question 1

The auditor looked at a bank statement received and held by the client. What kind of audit procedure would this be considered?

Accepted Answer

A) Recalculation. 
B) Physical observation. 
C) Confirmation. 
D) Examination of documents. 
A) Recalculation. 
B) Physical observation. 
C) Confirmation. 
D) Examination of documents.

Question 2

Which of the following is a correct statement regarding the nature and timing of communications between an accounting firm performing an initial audit of an issuer and the issuer's audit committee?

Accepted Answer

A) Prior to accepting the engagement, the firm must orally affirm its independence to the audit committee with all members present. 
B) The firm must address all independence impairment issues on the date of the audit opinion. 
C) Communications related to independence may occur in any form prior to issuance of the financial statements. 
D) Prior to accepting the engagement, the firm should describe in writing all relationships that, as of the date of the communication, may reasonably be thought to bear on independence. 
A) Prior to accepting the engagement, the firm must orally affirm its independence to the audit committee with all members present. 
B) The firm must address all independence impairment issues on the date of the audit opinion. 
C) Communications related to independence may occur in any form prior to issuance of the financial statements. 
D) Prior to accepting the engagement, the firm should describe in writing all relationships that, as of the date of the communication, may reasonably be thought to bear on independence.

Question 3

Prior to beginning the fieldwork on a new audit engagement in which the audit team does not possess expertise in the industry in which the client operates, the audit team should:

Accepted Answer

A) reduce audit risk by lowering the preliminary levels of materiality. 
B) design special substantive tests to compensate for the lack of industry expertise. 
C) engage financial experts familiar with the nature of the industry. 
D) obtain knowledge of matters that relate to the nature of the entity's business. 
A) reduce audit risk by lowering the preliminary levels of materiality. 
B) design special substantive tests to compensate for the lack of industry expertise. 
C) engage financial experts familiar with the nature of the industry. 
D) obtain knowledge of matters that relate to the nature of the entity's business.

Question 4

Audit documentation does not normally include the:

Accepted Answer

A) specific assertions under audit. 
B) industry accounting guides. 
C) record of the procedures performed. 
D) decisions made in the course of the audit. 
A) specific assertions under audit. 
B) industry accounting guides. 
C) record of the procedures performed. 
D) decisions made in the course of the audit.

Question 5

An auditor's purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management's assertion about:

Accepted Answer

A) rights and obligations. 
B) existence. 
C) presentation and disclosure. 
D) valuation. 
A) rights and obligations. 
B) existence. 
C) presentation and disclosure. 
D) valuation.

Question 6

Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

Accepted Answer

A) Inquiring of the client's legal counsel concerning pending litigation. 
B) Comparing the financial statements to anticipated results. 
C) Examining computer-generated exception reports to verify the effectiveness of internal controls. 
D) Searching for unauthorized transactions that may aid in detecting unrecorded liabilities. 
A) Inquiring of the client's legal counsel concerning pending litigation. 
B) Comparing the financial statements to anticipated results. 
C) Examining computer-generated exception reports to verify the effectiveness of internal controls. 
D) Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.

Question 7

In determining whether transactions have been recorded, the direction of the audit testing should start from the:

Accepted Answer

A) general ledger balances. 
B) adjusted trial balance. 
C) original source documents. 
D) general journal entries. 
A) general ledger balances. 
B) adjusted trial balance. 
C) original source documents. 
D) general journal entries.

Question 8

The independent auditors' audit design prepared prior to the start of fieldwork is appropriately considered documentation of:

Accepted Answer

A) planning. 
B) supervision. 
C) information evaluation. 
D) quality assurance. 
A) planning. 
B) supervision. 
C) information evaluation. 
D) quality assurance.

Question 9

Which of the following auditor concerns most likely could be so serious that the auditor would conclude that a financial statement audit cannot be conducted?

Accepted Answer

A) The entity has no formal written code of conduct. 
B) The integrity of entity's management is suspect. 
C) Procedures requiring separation of duties are subject to management override. 
D) Management fails to modify prescribed controls for changes in conditions. 
A) The entity has no formal written code of conduct. 
B) The integrity of entity's management is suspect. 
C) Procedures requiring separation of duties are subject to management override. 
D) Management fails to modify prescribed controls for changes in conditions.

Question 10

Which of the following steps should an auditor perform first to determine the existence of related parties?

Accepted Answer

A) Examine invoices, contracts, and purchasing orders. 
B) Request a list of related parties from management. 
C) Review the company's business structure. 
D) Review proxy and other materials filed with the SEC. 
A) Examine invoices, contracts, and purchasing orders. 
B) Request a list of related parties from management. 
C) Review the company's business structure. 
D) Review proxy and other materials filed with the SEC.

Question 11

The auditor is not required to ask the predecessor auditor about:

Accepted Answer

A) facts that might bear on the integrity of management. 
B) disagreements the predecessor may have had with management about accounting principles and audit procedures. 
C) the fees charged for the previous audit. 
D) the predecessor's understanding about the reasons for the change of auditors. 
A) facts that might bear on the integrity of management. 
B) disagreements the predecessor may have had with management about accounting principles and audit procedures. 
C) the fees charged for the previous audit. 
D) the predecessor's understanding about the reasons for the change of auditors.

Question 12

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

Accepted Answer

A) make inquiries of the predecessor auditor after obtaining the consent of the prospective client. 
B) obtain the prospective client's signature to the engagement letter. 
C) prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. 
D) discuss the management representation letter with the prospective client's audit committee. 
A) make inquiries of the predecessor auditor after obtaining the consent of the prospective client. 
B) obtain the prospective client's signature to the engagement letter. 
C) prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. 
D) discuss the management representation letter with the prospective client's audit committee.

Question 13

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of:

Accepted Answer

A) rights and obligations. 
B) completeness. 
C) presentation and disclosure. 
D) existence or occurrence. 
A) rights and obligations. 
B) completeness. 
C) presentation and disclosure. 
D) existence or occurrence.

Question 14

Which of the following is not a way in which auditors use the concept of overall materiality?

Accepted Answer

A) As a guide to planning the audit plan. 
B) As a guide to the evaluation of evidence. 
C) As a guide for making decisions about the audit report. 
D) As a guide for assessing control risk. 
A) As a guide to planning the audit plan. 
B) As a guide to the evaluation of evidence. 
C) As a guide for making decisions about the audit report. 
D) As a guide for assessing control risk.

Question 15

The firm of Banta, Brown, and Burgess, CPAs, requires that audit documentation contain the initials of the preparer and the reviewer in the top right-hand corner. This procedure provides evidence of professional concern regarding which generally accepted auditing standard?

Accepted Answer

A) Independence. 
B) Adequate technical competence and capabilities. 
C) Adequate planning and supervision. 
D) Gathering sufficient competent evidence. 
A) Independence. 
B) Adequate technical competence and capabilities. 
C) Adequate planning and supervision. 
D) Gathering sufficient competent evidence.

Question 16

Which of the following provides the best method of obtaining an understanding of a continuing client's business for planning an audit?

Accepted Answer

A) Performing tests of details of transactions and balances. 
B) Reviewing prior year audit documentation and the permanent file for the client. 
C) Reading specialized industry journals. 
D) Reevaluating the client's internal control environment. 
A) Performing tests of details of transactions and balances. 
B) Reviewing prior year audit documentation and the permanent file for the client. 
C) Reading specialized industry journals. 
D) Reevaluating the client's internal control environment.

Question 17

Looking at vendors' invoices for particular information is an example of:

Accepted Answer

A) physical observation. 
B) confirmation. 
C) inspection of documents. 
D) scanning. 
A) physical observation. 
B) confirmation. 
C) inspection of documents. 
D) scanning.

Question 18

An auditor who uses 7 percent of income before taxes as a basis for overall materiality would be basing judgment on:

Accepted Answer

A) absolute size. 
B) relative size. 
C) nature of the item. 
D) cumulative effects. 
A) absolute size. 
B) relative size. 
C) nature of the item. 
D) cumulative effects.

Question 19

An auditor tests an entity's control that matches shipping documents to sales invoices before they are recorded in the financial statements as revenue in support of management's financial statement assertion of:

Accepted Answer

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

Question 20

Which of the following would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement?

Accepted Answer

A) Disagreements between the predecessor auditor and management as to significant accounting policies and principles. 
B) The predecessor auditor's understanding of the reasons for the change of auditors. 
C) Facts known to the predecessor auditor that might bear on the integrity of management. 
D) Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years. 
A) Disagreements between the predecessor auditor and management as to significant accounting policies and principles. 
B) The predecessor auditor's understanding of the reasons for the change of auditors. 
C) Facts known to the predecessor auditor that might bear on the integrity of management. 
D) Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years.

The auditor looked at a bank statement received and held by the client. What kind of audit procedure would this be considered?

Which of the following is a correct statement regarding the nature and timing of communications between an accounting firm performing an initial audit of an issuer and the issuer's audit committee?

Prior to beginning the fieldwork on a new audit engagement in which the audit team does not possess expertise in the industry in which the client operates, the audit team should:

Audit documentation does not normally include the:

An auditor's purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management's assertion about:

Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

In determining whether transactions have been recorded, the direction of the audit testing should start from the:

The independent auditors' audit design prepared prior to the start of fieldwork is appropriately considered documentation of:

Which of the following auditor concerns most likely could be so serious that the auditor would conclude that a financial statement audit cannot be conducted?

Which of the following steps should an auditor perform first to determine the existence of related parties?

The auditor is not required to ask the predecessor auditor about:

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

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of:

Which of the following is not a way in which auditors use the concept of overall materiality?

The firm of Banta, Brown, and Burgess, CPAs, requires that audit documentation contain the initials of the preparer and the reviewer in the top right-hand corner. This procedure provides evidence of professional concern regarding which generally accepted auditing standard?

Which of the following provides the best method of obtaining an understanding of a continuing client's business for planning an audit?

Looking at vendors' invoices for particular information is an example of:

An auditor who uses 7 percent of income before taxes as a basis for overall materiality would be basing judgment on:

An auditor tests an entity's control that matches shipping documents to sales invoices before they are recorded in the financial statements as revenue in support of management's financial statement assertion of:

Which of the following would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement?

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

The auditor looked at a bank statement received and held by the client. What kind of audit procedure would this be considered?

Which of the following is a correct statement regarding the nature and timing of communications between an accounting firm performing an initial audit of an issuer and the issuer's audit committee?

Prior to beginning the fieldwork on a new audit engagement in which the audit team does not possess expertise in the industry in which the client operates, the audit team should:

Audit documentation does not normally include the:

An auditor's purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management's assertion about:

Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

In determining whether transactions have been recorded, the direction of the audit testing should start from the:

The independent auditors' audit design prepared prior to the start of fieldwork is appropriately considered documentation of:

Which of the following auditor concerns most likely could be so serious that the auditor would conclude that a financial statement audit cannot be conducted?

Which of the following steps should an auditor perform first to determine the existence of related parties?

The auditor is not required to ask the predecessor auditor about:

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

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of:

Which of the following is not a way in which auditors use the concept of overall materiality?

The firm of Banta, Brown, and Burgess, CPAs, requires that audit documentation contain the initials of the preparer and the reviewer in the top right-hand corner. This procedure provides evidence of professional concern regarding which generally accepted auditing standard?

Which of the following provides the best method of obtaining an understanding of a continuing client's business for planning an audit?

Looking at vendors' invoices for particular information is an example of:

An auditor who uses 7 percent of income before taxes as a basis for overall materiality would be basing judgment on:

An auditor tests an entity's control that matches shipping documents to sales invoices before they are recorded in the financial statements as revenue in support of management's financial statement assertion of:

Which of the following would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement?

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