Question 1

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

Question 2

The written communication stating the auditor cannot guarantee that all acts of fraud will be discovered is found in the

Accepted Answer

A)  engagement letter. 
B)  representation letter. 
C)  responsibility letter. 
D)  client letter.

Question 3

In what order should the following steps occur?
A. Set preliminary judgment of materiality and performance materiality.
B. Understand the client's business and industry.
C. Perform preliminary analytical procedures.
D. Accept the client and perform initial audit planning.

Accepted Answer

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

Question 4

Which is usually included in an engagement letter?

Accepted Answer

A)   
B)   
C)   
D)

Question 5

Total estimated misstatements include known misstatements and projected misstatements plus a sampling error.

Accepted Answer

A) True 
 B)False

Question 6

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.

Question 7

When allocating materiality, most practitioners choose to allocate to

Accepted Answer

A)  the income statement accounts because they are more important. 
B)  the balance sheet accounts because most audits focus on the balance sheet. 
C)  both balance sheet and income statement accounts because there could be errors on either. 
D)  all of the financial statements because it is required by GAAS.

Question 8

Likely misstatements can result from

Accepted Answer

A)   
B)   
C)   
D)

Question 9

Client business risk includes the auditor identifying declines in economic conditions that adversely affect both sales and the collectability of accounts receivable.

Accepted Answer

A) True 
 B)False

Question 10

When developing the overall strategy for the audit, the auditor will

Accepted Answer

A)  decide whether to accept a new client. 
B)  determine if any audit specialists will be required. 
C)  identify why the auditor needs an audit. 
D)  obtain an engagement letter.

Question 11

Auditing standards define ________ as the magnitude of misstatements that individually, or when aggregated with other misstatements, could reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.

Accepted Answer

A)  fraud 
B)  inherent risk 
C)  materiality 
D)  significant

Question 12

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

Accepted Answer

The answer of Discuss the primary purpose of an audit...

Question 13

If the client will not permit the predecessor auditor to communicate with the successor auditor, or the predecessor does not provide a comprehensive response to the successor auditor, the successor auditor must not accept the audit engagement.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is part of planning?

Accepted Answer

A)  Set materiality for the financial statements as a whole. 
B)  Estimate total misstatement in the segment. 
C)  Estimate the combined misstatement. 
D)  Compare the combined estimated with preliminary judgment.

Question 15

Both overstatements and understatements must be considered when allocating materiality to balance sheet accounts.

Accepted Answer

A) True 
 B)False

Question 16

The first step in applying materiality is to determine performance materiality.

Accepted Answer

A) True 
 B)False

Question 17

When dealing with materiality,

Accepted Answer

A)  if the client refuses to correct a material misstatement, the auditor is required to adjust the financial statements. 
B)  management is responsible for determining whether financial statements are materially misstated. 
C)  materiality must be determined as a percentage of sales. 
D)  the auditor must bring any material misstatements to the client's attention.

Question 18

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

Question 19

The engagement letter may include an agreement to provide other services to the audit client such as tax returns and management consulting services allowed under the Code of Professional Conduct and regulatory requirements.

Accepted Answer

A) True 
 B)False

Question 20

Discuss several reasons why an auditor may not wish to continue a relationship with an existing audit client.

Accepted Answer

The answer of Discuss several reasons why an auditor may...

Exam 8: Audit Planning and Materiality

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

The written communication stating the auditor cannot guarantee that all acts of fraud will be discovered is found in the

In what order should the following steps occur? A. Set preliminary judgment of materiality and performance materiality. B. Understand the client's business and industry. C. Perform preliminary analytical procedures. D. Accept the client and perform initial audit planning.

Which is usually included in an engagement letter?

Total estimated misstatements include known misstatements and projected misstatements plus a sampling error.

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

When allocating materiality, most practitioners choose to allocate to

Likely misstatements can result from

Client business risk includes the auditor identifying declines in economic conditions that adversely affect both sales and the collectability of accounts receivable.

When developing the overall strategy for the audit, the auditor will

Auditing standards define ________ as the magnitude of misstatements that individually, or when aggregated with other misstatements, could reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.

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

If the client will not permit the predecessor auditor to communicate with the successor auditor, or the predecessor does not provide a comprehensive response to the successor auditor, the successor auditor must not accept the audit engagement.

Which of the following is part of planning?

Both overstatements and understatements must be considered when allocating materiality to balance sheet accounts.

The first step in applying materiality is to determine performance materiality.

When dealing with materiality,

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 engagement letter may include an agreement to provide other services to the audit client such as tax returns and management consulting services allowed under the Code of Professional Conduct and regulatory requirements.

Discuss several reasons why an auditor may not wish to continue a relationship with an existing audit client.