Question 1

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the auditor's expectations.If management is unable to provide an acceptable explanation,the auditor should ________.

Accepted Answer

A) consider the matter a scope limitation 
B) perform additional audit procedures to investigate the matter further 
C) intensify the audit with the expectation of detecting management fraud 
D) withdraw from the engagement

Question 2

During the preliminary analytical review,the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold.The auditors should consider performing a careful lower-of-cost-or-market valuation of the year-end inventory.

Accepted Answer

A) True 
 B)False

Question 3

What are auditors referring to when they talk about the nature,timing,and extent of audit procedures?

Accepted Answer

The answer of What are auditors referring to when they...

Question 4

Contrast horizontal and vertical analysis.Give an example of each.

Accepted Answer

The answer of Contrast horizontal and vertical analysis.Give an example...

Question 5

Analytical procedures are required at both the beginning and the end of an audit.

Accepted Answer

A) True 
 B)False

Question 6

What is meant by materiality?

Accepted Answer

The answer of What is meant by materiality?...

Question 7

Which of the following is likely to be found in the minutes of the board of directors?

Accepted Answer

A) Approval of customer credit limits. 
B) Approval of a new computer for the controller. 
C) Authorization of employee salaries. 
D) Authorization of executive salaries.

Question 8

Generally accepted auditing standards require that analytical procedures should be applied ________.

Accepted Answer

A) in the planning and final review stages of the audit and as a substantive test during the audit 
B) in the planning and final review stages of the audit,and can be used as a substantive test during the audit 
C) in the planning stage,and can be applied as a substantive test and in the final review stage 
D) in the final review stage,and can be applied as a substantive test in the planning stage

Question 9

The audit objective specifying that "all recorded assets,liabilities,and transactions represent real assets,liabilities,revenues,and expenses" is related most closely to which assertion(s)?

Accepted Answer

A) Existence or occurrence. 
B) Rights and obligations. 
C) Completeness. 
D) Presentation and disclosure.

Question 10

Relationships on the financial statements that do not make sense may indicate problem areas in the accounts.

Accepted Answer

A) True 
 B)False

Question 11

The CAs provide the overall objective of a financial statement auditor and set out the requirements that must be met to meet that objective.

Accepted Answer

A) True 
 B)False

Question 12

How should auditors use the concept of materiality?

Accepted Answer

A) As a guide to assessing inherent risk 
B) As a guide in assessing control risk. 
C) As a guide in deciding to report a deficiency to the audit committee. 
D) As a guide in planning the audit program.

Question 13

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

Accepted Answer

A) True 
 B)False

Question 14

Give some examples of cut off errors and explain what management assertions are affected by such errors.

Accepted Answer

The answer of Give some examples of cut off errors...

Question 15

An "accountable party" can be all of the following at the same time except ________.

Accepted Answer

A) an auditor 
B) an entity 
C) a client 
D) an auditee

Question 16

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

Accepted Answer

A) True 
 B)False

Question 17

This question tests your ability to perceive the place(s)where potential problems may exist and the type of problem (overstatement or understatement)that may exist.
Required:
For each of the items below,identify the account(s)that need(s)to be audited carefully and the reason;for example,"potential overstatement or understatement of _______."
A)Current year accounts receivable is larger than last year but the allowance for doubtful accounts is the same.
B)Current year inventory is larger than last year but the current year gross margin (profit)is larger.
C)Current year long-term liabilities are larger than last year but the interest expense is the same.
D)Current-year fixed assets total is larger than last year but current amortization expense is the same as last year.

Accepted Answer

The answer of This question tests your ability to perceive...

Question 18

Materiality is primarily a quantitative calculation.

Accepted Answer

A) True 
 B)False

Question 19

What is the best description of the engagement letter?

Accepted Answer

A) The letter soliciting a potential client. 
B) A letter from a successor auditor to a predecessor auditor asking to review the working papers for the previous year. 
C) The audit contract,which may include special requests. 
D) The letter at the end of the audit engagement reviewing any concerns the auditors wish management to be aware of.

Question 20

If an auditor were to use 5% of income before taxes as a basis for materiality,it would be an example of judgment based on ________.

Accepted Answer

A) absolute size 
B) relative size 
C) nature of the item 
D) cumulative effects

Exam 5: Preliminary Audit Planning: Understanding the Auditees Business

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the auditor's expectations.If management is unable to provide an acceptable explanation,the auditor should ________.

During the preliminary analytical review,the auditor discovered that the auditee forecast sales of 10,000 units but only 5,000 were sold.The auditors should consider performing a careful lower-of-cost-or-market valuation of the year-end inventory.

What are auditors referring to when they talk about the nature,timing,and extent of audit procedures?

Contrast horizontal and vertical analysis.Give an example of each.

Analytical procedures are required at both the beginning and the end of an audit.

What is meant by materiality?

Which of the following is likely to be found in the minutes of the board of directors?

Generally accepted auditing standards require that analytical procedures should be applied ________.

The audit objective specifying that "all recorded assets,liabilities,and transactions represent real assets,liabilities,revenues,and expenses" is related most closely to which assertion(s) ?

Relationships on the financial statements that do not make sense may indicate problem areas in the accounts.

The CAs provide the overall objective of a financial statement auditor and set out the requirements that must be met to meet that objective.

How should auditors use the concept of materiality?

Audit planning is an ongoing process where information gained as the audit is performed may result in changes to the plan.

Give some examples of cut off errors and explain what management assertions are affected by such errors.

An "accountable party" can be all of the following at the same time except ________.

Materiality levels determined at the planning stage are used to decide how much work to do on each financial statement account.

Materiality is primarily a quantitative calculation.

What is the best description of the engagement letter?

If an auditor were to use 5% of income before taxes as a basis for materiality,it would be an example of judgment based on ________.