Question 1

When using financial ratios,the most important comparisons are to those of previous years for the company and to industry averages or similar companies for the same year.

Accepted Answer

A) True 
 B)False

Question 2

Discuss four of the matters that should be specified in an engagement letter.

Accepted Answer

Matters that should be specified in the

Question 3

Which of the following normally signs the engagement letter for an audit of a private company?

Accepted Answer

A)  Management 
B)  Board of directors representative 
C)  Audit committee representative 
D)  Corporate treasurer 
A)  Management 
B)  Board of directors representative 
C)  Audit committee representative 
D)  Corporate treasurer

Question 4

Define business risk.List several factors that may impact the auditor's assessment of business risk.

Accepted Answer

Business risk is the risk that a company

Question 5

As acceptable audit risk is decreased,the likely cost of conducting an audit increases.

Accepted Answer

A) True 
 B)False

Question 6

Management's philosophy and operating style influence the risk of material misstatements in the financial statements.

Accepted Answer

A) True 
 B)False

Question 7

A successor auditor may perform which of the following for a new audit client?

Accepted Answer

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

Question 8

Discuss the factors an auditor should consider before accepting a company as an audit client.

Accepted Answer

The auditor should investigate and consi

Question 9

The auditor is likely to accumulate more evidence when the audit is for a company:

Accepted Answer

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

Question 10

Whenever an auditor compares client data to client-prepared budgets,there are two special concerns.Indicate if the two items below are concerns.

Accepted Answer

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

Question 11

Which is usually included in the engagement letter?

Accepted Answer

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

Question 12

Many inherent risks are common to all clients in certain industries.

Accepted Answer

A) True 
 B)False

Question 13

When dealing with audit risk:

Accepted Answer

A)  audit risk should not be a factor when determining if a new client should be accepted. 
B)  audits with a low acceptable audit risk generally result in lower audit fees. 
C)  if management of a company has a reputation of integrity, but is also known to take aggressive financial risks, the auditor should not accept the company as a new client. 
D)  if the auditor concludes that acceptable audit risk is low, but the client is still acceptable, the auditor may still accept the engagement but increase the audit fee. 
A)  audit risk should not be a factor when determining if a new client should be accepted. 
B)  audits with a low acceptable audit risk generally result in lower audit fees. 
C)  if management of a company has a reputation of integrity, but is also known to take aggressive financial risks, the auditor should not accept the company as a new client. 
D)  if the auditor concludes that acceptable audit risk is low, but the client is still acceptable, the auditor may still accept the engagement but increase the audit fee.

Question 14

Obtaining sufficient appropriate evidence is essential if the CPA firm is to minimize legal liability.

Accepted Answer

A) True 
 B)False

Question 15

Because of audit risk,some CPA firms now refuse any new clients in certain high-risk industries.

Accepted Answer

A) True 
 B)False

Question 16

The auditor determines that Mathews Company occupies the 3rd floor of an office tower for which it pays no rent.The most likely explanation is:

Accepted Answer

A)  they got lucky the landlord hasn't noticed the lack of payments. 
B)  landlord has weak internal controls over billings. 
C)  a related party transaction in which a major shareholder owns the office tower. 
D)  Matthews Company is engaging in fraudulent activities. 
A)  they got lucky the landlord hasn't noticed the lack of payments. 
B)  landlord has weak internal controls over billings. 
C)  a related party transaction in which a major shareholder owns the office tower. 
D)  Matthews Company is engaging in fraudulent activities.

Question 17

Discuss the primary purpose of an audit engagement letter.Is an engagement letter required?

Accepted Answer

The purpose of an audit engagement lette

Question 18

Because of the lack of independence between related parties,the Sarbanes-Oxley Act prohibits all related party transactions.

Accepted Answer

A) True 
 B)False

Question 19

Management is the primary source for identifying client business risks.

Accepted Answer

A) True 
 B)False

Question 20

When may the auditor refer to a specialist in the audit report?

Accepted Answer

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

Exam 8: Audit Planning

When using financial ratios,the most important comparisons are to those of previous years for the company and to industry averages or similar companies for the same year.

Discuss four of the matters that should be specified in an engagement letter.

Which of the following normally signs the engagement letter for an audit of a private company?

Define business risk.List several factors that may impact the auditor's assessment of business risk.

As acceptable audit risk is decreased,the likely cost of conducting an audit increases.

Management's philosophy and operating style influence the risk of material misstatements in the financial statements.

A successor auditor may perform which of the following for a new audit client?

Discuss the factors an auditor should consider before accepting a company as an audit client.

The auditor is likely to accumulate more evidence when the audit is for a company:

Whenever an auditor compares client data to client-prepared budgets,there are two special concerns.Indicate if the two items below are concerns.

Which is usually included in the engagement letter?

Many inherent risks are common to all clients in certain industries.

When dealing with audit risk:

Obtaining sufficient appropriate evidence is essential if the CPA firm is to minimize legal liability.

Because of audit risk,some CPA firms now refuse any new clients in certain high-risk industries.

The auditor determines that Mathews Company occupies the 3rd floor of an office tower for which it pays no rent.The most likely explanation is:

Discuss the primary purpose of an audit engagement letter.Is an engagement letter required?

Because of the lack of independence between related parties,the Sarbanes-Oxley Act prohibits all related party transactions.

Management is the primary source for identifying client business risks.

When may the auditor refer to a specialist in the audit report?

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

Filters

The auditor determines that Mathews Company occupies the 3^rd floor of an office tower for which it pays no rent.The most likely explanation is: