Question 1

A major consideration in audit staffing is the need for continuity from year to year.

Accepted Answer

A) True 
 B)False  True

Question 2

Discuss the essential activities involved in the initial planning of an audit.

Accepted Answer

There are four essential activities involved in the initial planning of an audit.These are:
1.Client acceptance or continuation.In the case of a new client,the auditor must determine whether the client is one with which they wish to be associated with.In the case of a continuing client,an auditor must determine whether continuing the relationship is appropriate and in the firm's best interest.
2.The auditor should identify why the client wants or needs an audit.The auditor should determine the reason for the audit as soon as practical.The remainder of the planning activities may be impacted by the client's reason for requesting the audit.
3.Obtain an understanding with the client about the terms of the engagement.An understanding with the client should be obtained to avoid misunderstandings.Auditors are required to obtain an understanding with their clients.This understanding must be written.
4.Develop an overall audit strategy.The strategy should consider the reasons for the audit,including engagement staffing and any required audit specialists.Setting a strategy helps the auditor determine the resources required for the engagement.

Question 3

Smith,CPA has requested permission to communicate with the predecessor auditor in order to review certain workpapers for high risk accounts for a new audit client.The new audit client's refusal to allow this communication to occur would impact Rodgers decision concerning:

Accepted Answer

A)  the auditor's ability to design audit tests. 
B)  possible scope exception due to lack of access. 
C)  the desirability of accepting the prospective engagement. 
D)  violation of the GAAP rules concerning consistency and comparability of financial information. 
A)  the auditor's ability to design audit tests. 
B)  possible scope exception due to lack of access. 
C)  the desirability of accepting the prospective engagement. 
D)  violation of the GAAP rules concerning consistency and comparability of financial information. C

Question 4

Which of the following best expresses the understanding of the terms of the engagement that exist between the client and the CPA firm?

Accepted Answer

A)  Management asserts there are no errors, material or immaterial, in the general ledger. 
B)  Auditors assert that the primary audit goal is audit efficiency. 
C)  Auditors assert that their primary responsibility is to plan and perform the audit in order to provide reasonable assurance as to the detection of material misstatement due to error or fraud. 
D)  Management asserts that they will provide the auditor with a risk assessment as to material misstatements due to errors or fraud in the company's financial statements. 
A)  Management asserts there are no errors, material or immaterial, in the general ledger. 
B)  Auditors assert that the primary audit goal is audit efficiency. 
C)  Auditors assert that their primary responsibility is to plan and perform the audit in order to provide reasonable assurance as to the detection of material misstatement due to error or fraud. 
D)  Management asserts that they will provide the auditor with a risk assessment as to material misstatements due to errors or fraud in the company's financial statements.

Question 5

Auditors routinely conduct analytical procedures in the planning,testing,and completion phases of the audit.Identify the primary and secondary purposes of performing analytical procedures in each phase of the audit.

Accepted Answer

•Planning - primary purposes are to unde

Question 6

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 
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 7

Auditors perform preliminary analytical procedures to better understand the client's business and to assess client business risk.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

Three reasons why an auditor should prop

Question 9

A predecessor auditor who has been contacted by a successor auditor for information about the client does not have to obtain permission from the former client before providing any confidential information to the successor auditor because the confidentiality requirement does not extend to former clients.

Accepted Answer

A) True 
 B)False

Question 10

What are three factors that have increased the importance of obtaining an understanding of a client's business and industry?
 How can an auditor obtain this understanding?

Accepted Answer

Factors that have increased the importan

Question 11

The two major factors affecting acceptable audit risk are:

Accepted Answer

A)  inherent risk and the intended uses of the financial statements. 
B)  control risk and the intended uses of the financial statements. 
C)  the likely statement users and the intended uses of the statements. 
D)  the audit firm and the intended uses of the statements 
A)  inherent risk and the intended uses of the financial statements. 
B)  control risk and the intended uses of the financial statements. 
C)  the likely statement users and the intended uses of the statements. 
D)  the audit firm and the intended uses of the statements

Question 12

Material transactions between the client and the client's related parties must be disclosed in the auditor's report.

Accepted Answer

A) True 
 B)False

Question 13

When selecting staff for the audit engagement:

Accepted Answer

A)  only staff members who are CPAs should be assigned to the audit. 
B)  only managers and above need to have appropriate competence and capabilities to perform the audit. 
C)  continuity of staff members from year to year should not be a factor. 
D)  staff assigned to the audit must be knowledgeable about the client's industry. 
A)  only staff members who are CPAs should be assigned to the audit. 
B)  only managers and above need to have appropriate competence and capabilities to perform the audit. 
C)  continuity of staff members from year to year should not be a factor. 
D)  staff assigned to the audit must be knowledgeable about the client's industry.

Question 14

A related party transaction 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. 
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 15

In order to be meaningful,a company's ratios should be compared to their prior year's ratios,not industry benchmarks.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is not correct with respect to analytical procedures?

Accepted Answer

A)  Auditing standards emphasize the need for auditors to develop and use expectations. 
B)  Analytical procedures must be performed throughout the audit. 
C)  Analytical procedures may be performed at any time during the audit. 
D)  Analytical procedures use comparisons and relationships to assess whether account balances appear reasonable. 
A)  Auditing standards emphasize the need for auditors to develop and use expectations. 
B)  Analytical procedures must be performed throughout the audit. 
C)  Analytical procedures may be performed at any time during the audit. 
D)  Analytical procedures use comparisons and relationships to assess whether account balances appear reasonable.

Question 17

Which is a liquidity activity ratio?

Accepted Answer

A)  Profit margin 
B)  Inventory turnover 
C)  Return on assets 
D)  Times interest earned 
A)  Profit margin 
B)  Inventory turnover 
C)  Return on assets 
D)  Times interest earned

Question 18

The audit team gathers information about a new client's business and industry in order to obtain:

Accepted Answer

A)  an understanding of the clients internal control system for financial reporting. 
B)  an understanding of how economic events and transactions have an effect on the company's financial statements. 
C)  information about control risk. 
D)  information regarding whether the company is engaging in financial statement fraud. 
A)  an understanding of the clients internal control system for financial reporting. 
B)  an understanding of how economic events and transactions have an effect on the company's financial statements. 
C)  information about control risk. 
D)  information regarding whether the company is engaging in financial statement fraud.

Question 19

The preliminary audit strategy:

Accepted Answer

A)  is set before the auditor understands the client's reasons for the audit. 
B)  guides the development of the audit plan. 
C)  is determined after the engagement staffing is set. 
D)  is the detailed steps to be followed for the substantive audit tests. 
A)  is set before the auditor understands the client's reasons for the audit. 
B)  guides the development of the audit plan. 
C)  is determined after the engagement staffing is set. 
D)  is the detailed steps to be followed for the substantive audit tests.

Question 20

Initial audit planning involves four matters.Which of the following is not one of these?

Accepted Answer

A)  Develop an overall audit strategy. 
B)  Request that bank balances be confirmed. 
C)  Schedule engagement staff and audit specialists. 
D)  Identify the client's reason for the audit. 
A)  Develop an overall audit strategy. 
B)  Request that bank balances be confirmed. 
C)  Schedule engagement staff and audit specialists. 
D)  Identify the client's reason for the audit.

Exam 8: Audit Planning

A major consideration in audit staffing is the need for continuity from year to year.

Discuss the essential activities involved in the initial planning of an audit.

Smith,CPA has requested permission to communicate with the predecessor auditor in order to review certain workpapers for high risk accounts for a new audit client.The new audit client's refusal to allow this communication to occur would impact Rodgers decision concerning:

Which of the following best expresses the understanding of the terms of the engagement that exist between the client and the CPA firm?

Auditors routinely conduct analytical procedures in the planning,testing,and completion phases of the audit.Identify the primary and secondary purposes of performing analytical procedures in each phase of the audit.

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?

Auditors perform preliminary analytical procedures to better understand the client's business and to assess client business risk.

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

What are three factors that have increased the importance of obtaining an understanding of a client's business and industry? How can an auditor obtain this understanding?

The two major factors affecting acceptable audit risk are:

Material transactions between the client and the client's related parties must be disclosed in the auditor's report.

When selecting staff for the audit engagement:

A related party transaction may be indicated when another company:

In order to be meaningful,a company's ratios should be compared to their prior year's ratios,not industry benchmarks.

Which of the following statements is not correct with respect to analytical procedures?

Which is a liquidity activity ratio?

The audit team gathers information about a new client's business and industry in order to obtain:

The preliminary audit strategy:

Initial audit planning involves four matters.Which of the following is not one of these?

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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