Question 1

The auditor uses knowledge gained from the understanding of the client's business and industry to assess:

Accepted Answer

A)  client business risk. 
B)  control risk. 
C)  inherent risk. 
D)  audit risk. 
A)  client business risk. 
B)  control risk. 
C)  inherent risk. 
D)  audit risk.

Question 2

The predecessor auditor is required to respond to the request of the successor auditor for information,but the response can be limited to stating that no information will be provided when:

Accepted Answer

A)  the predecessor auditor has poor relations with the successor auditor. 
B)  the client is dissatisfied with the predecessor's work. 
C)  there are actual or potential legal problems between the client and the predecessor. 
D)  the predecessor believes that the client lacks integrity. 
A)  the predecessor auditor has poor relations with the successor auditor. 
B)  the client is dissatisfied with the predecessor's work. 
C)  there are actual or potential legal problems between the client and the predecessor. 
D)  the predecessor believes that the client lacks integrity.

Question 3

When performing planning analytical procedures for a client the auditor detected that the gross profit percentage had declined by 50% from the previous year to the year currently under audit.The auditor should:

Accepted Answer

A)  investigate the possibility the client may have made an error in their cost of goods sold computation. 
B)  assist management in developing greater cost efficiencies in their product line. 
C)  prepare a going concern opinion for the client. 
D)  advise the client to have extensive disclosure to alleviate investor concerns. 
A)  investigate the possibility the client may have made an error in their cost of goods sold computation. 
B)  assist management in developing greater cost efficiencies in their product line. 
C)  prepare a going concern opinion for the client. 
D)  advise the client to have extensive disclosure to alleviate investor concerns.

Question 4

When inherent risk is high,there will need to be:

Accepted Answer

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

Question 5

Ordinarily,the auditor should review corporate minutes during the later stages of an audit.

Accepted Answer

A) True 
 B)False

Question 6

All know related parties must be identified and included in the auditor's permanent files related to the client.

Accepted Answer

A) True 
 B)False

Question 7

When a successor auditor contacts a company's previous auditor,the predecessor auditor is required to respond fully and without limit to the request for information.

Accepted Answer

A) True 
 B)False

Question 8

When an auditor decides there is higher inherent risk for an account,one potential effect is that more audit evidence will be required for that account.

Accepted Answer

A) True 
 B)False

Question 9

An auditor must evaluate a specialist's professional qualifications and understand the objectives of the specialist's work.

Accepted Answer

A) True 
 B)False

Question 10

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

Auditors commonly obtain organizational

Question 11

An engagement letter sent to a publicly held audit client usually would not include a:

Accepted Answer

A)  reference to the auditor's responsibility for the detection of errors or irregularities. 
B)  estimation of the time to be spent on the audit work by audit staff and management. 
C)  statement that management advisory services would be made available upon request. 
D)  reference to management's responsibility for the financial statements. 
A)  reference to the auditor's responsibility for the detection of errors or irregularities. 
B)  estimation of the time to be spent on the audit work by audit staff and management. 
C)  statement that management advisory services would be made available upon request. 
D)  reference to management's responsibility for the financial statements.

Question 12

A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called:

Accepted Answer

A)  control risk. 
B)  acceptable audit risk. 
C)  statistical risk. 
D)  inherent risk. 
A)  control risk. 
B)  acceptable audit risk. 
C)  statistical risk. 
D)  inherent risk.

Question 13

The major concern when using nonfinancial data in analytical procedures is the:

Accepted Answer

A)  accuracy of the nonfinancial data. 
B)  source of the nonfinancial data. 
C)  type of nonfinancial data. 
D)  presence of multiple sources of nonfinancial data. 
A)  accuracy of the nonfinancial data. 
B)  source of the nonfinancial data. 
C)  type of nonfinancial data. 
D)  presence of multiple sources of nonfinancial data.

Question 14

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:

Accepted Answer

A)  engage financial experts familiar with the nature of the business entity. 
B)  obtain a knowledge of matters that relate to the nature of the entity's business. 
C)  refer a substantial portion of the audit to another CPA who will act as the principal auditor. 
D)  first inform management that an unqualified opinion cannot be issued. 
A)  engage financial experts familiar with the nature of the business entity. 
B)  obtain a knowledge of matters that relate to the nature of the entity's business. 
C)  refer a substantial portion of the audit to another CPA who will act as the principal auditor. 
D)  first inform management that an unqualified opinion cannot be issued.

Question 15

For prospective clients that have previously been audited by another CPA firm,the predecessor auditor is required to communicate with the successor auditor.

Accepted Answer

A) True 
 B)False

Question 16

Before accepting a new client,most CPA firms investigate the company to determine its acceptability.However,AICPA confidentiality requirements prohibit CPA firms from contacting certain parties-namely the company's attorneys and bankers-during this investigation.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is most correct with respect to the use of analytical procedures?

Accepted Answer

A)  Analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption. 
B)  Analytical procedures must be used throughout the audit. 
C)  Analytical procedures used in the testing phase of the audit are primarily used to direct an auditor's attention so that the auditor's understanding of the business is improved. 
D)  Analytical procedures are performed by studying plausible relationships between financial and nonfinancial data. 
A)  Analytical procedures may be used in evaluating balances in the testing phase as long as the auditor also uses them in assessing the going concern assumption. 
B)  Analytical procedures must be used throughout the audit. 
C)  Analytical procedures used in the testing phase of the audit are primarily used to direct an auditor's attention so that the auditor's understanding of the business is improved. 
D)  Analytical procedures are performed by studying plausible relationships between financial and nonfinancial data.

Question 18

The most widely used profitability ratio is return on assets.

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

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

Exam 8: Audit Planning

The auditor uses knowledge gained from the understanding of the client's business and industry to assess:

The predecessor auditor is required to respond to the request of the successor auditor for information,but the response can be limited to stating that no information will be provided when:

When performing planning analytical procedures for a client the auditor detected that the gross profit percentage had declined by 50% from the previous year to the year currently under audit.The auditor should:

When inherent risk is high,there will need to be:

Ordinarily,the auditor should review corporate minutes during the later stages of an audit.

All know related parties must be identified and included in the auditor's permanent files related to the client.

When a successor auditor contacts a company's previous auditor,the predecessor auditor is required to respond fully and without limit to the request for information.

When an auditor decides there is higher inherent risk for an account,one potential effect is that more audit evidence will be required for that account.

An auditor must evaluate a specialist's professional qualifications and understand the objectives of the specialist's work.

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

An engagement letter sent to a publicly held audit client usually would not include a:

A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called:

The major concern when using nonfinancial data in analytical procedures is the:

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:

For prospective clients that have previously been audited by another CPA firm,the predecessor auditor is required to communicate with the successor auditor.

Before accepting a new client,most CPA firms investigate the company to determine its acceptability.However,AICPA confidentiality requirements prohibit CPA firms from contacting certain parties-namely the company's attorneys and bankers-during this investigation.

Which of the following is most correct with respect to the use of analytical procedures?

The most widely used profitability ratio is return on assets.

In making client acceptance decisions,the audit firm will consider:

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.

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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