Question 1

Which of the following explanations best describes why an auditor may decide to reduce tests of details for a particular audit objective?

Accepted Answer

A)  The audit is being performed soon after the balance sheet date.
B)  Audit staff are experienced in performing the planned procedures.
C)  Analytical procedures have revealed no unusual or unexpected results.
D)  There were many transactions posted to the account during the period. C

Question 2

What are the characteristics that distinguish computer processing from manual processing?

Accepted Answer

Characteristics that distinguish computer processing from manual processing include: a.Computer system transaction trails may exist for only a short time. b.Computers process similar transactions uniformly. c.Functions are more concentrated in a computer system. d.Increased potential for errors and irregularities exist in computer systems. e.Certain transactions can be initiated or executed automatically in a computer system.

Question 3

When applying analytical procedures during an audit,which of the following is the best approach for developing expectations?

Accepted Answer

A)  Considering unaudited account balances and ratios to calculate what adjusted balances should be
B)  Identifying reasonable explanations for unexpected differences before talking to client management
C)  Considering the pattern of several unusual changes without trying to explain what caused them
D)  Comparing client data with client-determined expected results to reduce detailed tests of account balances B

Question 4

An auditor most likely would inspect additions to the audit client's Property,Plant,and Equipment account to obtain evidence concerning management's assertions about

Accepted Answer

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

Question 5

Which of the following types of transactions would be routine and computerized?

Accepted Answer

A)  Capital stock sales and repurchases
B)  Credit sales and billings
C)  Income tax expense and liability
D)  Bank loan transactions

Question 6

Auditors should design the written audit plan so that

Accepted Answer

A)  all material transactions will be selected for substantive testing.
B)  substantive tests prior to the balance sheet date will be minimized.
C)  the audit procedures selected will achieve specific audit objectives.
D)  each account balance will be tested under either tests of controls or tests of transactions.

Question 7

In testing the completeness assertion for a liability account,an auditor ordinarily works from the

Accepted Answer

A)  financial statements to the potentially unrecorded items.
B)  potentially unrecorded items to the financial statements.
C)  accounting records to the supporting evidence.
D)  trial balance to the subsidiary ledger.

Question 8

In designing written audit plans,an auditor should establish specific audit objectives that relate primarily to the

Accepted Answer

A)  timing of audit procedures.
B)  cost-benefit of gathering techniques.
C)  selected audit techniques.
D)  financial statement assertions.

Question 9

Do the following regarding auditors' concepts of overall "materiality" considered at the planning stage (i.e.,"planning materiality").
a.Define or describe independent auditors' concept of "planning materiality."
b.Name (but do not describe or explain)three common relationships or considerations used by auditors when assessing the dollar amount considered to be material.

Accepted Answer

The answer of Do the following regarding auditors' concepts of...

Question 10

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

Question 11

An auditor would most likely be use word processing software for what purpose?

Accepted Answer

A)  Performing analytical procedures
B)  Preparing a trial balance
C)  Preparing an audit plan
D)  Obtaining a sample selection

Question 12

Errors in data processed in a batch computer system may not be detected immediately because

Accepted Answer

A)  transaction trails in a batch system are available for only a limited period of time.
B)  there are time delays in processing transactions in a batch system.
C)  errors in some transactions cause rejection of other transactions in the batch.
D)  random errors are more likely in a batch system than in an online system.

Question 13

Which of the following audit procedures would an auditor most likely perform to test controls relating to management's valuation assertion for accounts receivable?

Accepted Answer

A)  Verify that extensions and footings on the entity's sales invoices and monthly customer statements have been recomputed.
B)  Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal.
C)  Compare the invoiced prices on prenumbered sales invoices to the entity's authorized price list.
D)  Inquire about the entity's credit-granting policies and test whether credit checks have been consistently applied to new customers.

Question 14

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.

Question 15

Management's responsibility in a computer system would not include

Accepted Answer

A)  ensuring that the documentation of the system is complete and up to date.
B)  maintaining a system of transaction processing that includes an audit trail.
C)  assessing the control risk.
D)  making computer resources and knowledgeable personnel available for questions.

Question 16

The pre-engagement activities of an audit engagement for a public accounting firm do not include

Accepted Answer

A)  evaluating the public accounting firm's independence with regard to the audit engagement.
B)  obtaining predecessor audit documentation.
C)  obtaining an engagement letter.
D)  ensuring that there are sufficient firm resources to complete the engagement on a timely basis.

Question 17

The idea of the cycle approach is to group accounts together by

Accepted Answer

A)  specific function.
B)  financial statement assertion.
C)  audit objective.
D)  transactions that affect all accounts in that particular group.

Question 18

An engagement letter is used primarily to

Accepted Answer

A)  ensure a clear contractual understanding of the services to be provided by the CPA.
B)  express an opinion on the financial statements.
C)  provide management representations to be included in the audit evidence.
D)  disclaim liability.

Question 19

To satisfy the valuation assertion when auditing an investment in another company that is publicly and actively traded,an auditor most likely would seek to

Accepted Answer

A)  inspect the stock certificates evidencing the investment.
B)  examine the audited financial statements of the investee company.
C)  review the broker's advice or canceled check for the investment's acquisition.
D)  obtain market quotations from The Wall Street Journal or another independent source.

Question 20

Which of the following matters does an auditor usually include in the engagement letter?

Accepted Answer

A)  Arrangements regarding fees and billing
B)  Analytical procedures that the auditor plans to perform
C)  Indications of negative cash flows from operating activities
D)  Identification of working capital deficiencies

Exam 3: Engagement Planning