Audit 1 Exam 1 Prep

The following questions deal with assurance services and types of audits. Choose the best response. 1. Which of the following is considered an assurance engagement? 1. Bookkeeping 2. Preparation 3. Compilation 4. Audit

4. Audit

Which of the following best describes the operational audit? 1. It requires the constant review by internal auditors of the administrative controls as they relate to the operations of the company. 2. It concentrates on implementing financial and accounting control in a newly organized company. 3. It focuses on verifying the fair presentation of a company's results of operations. 4. It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls.

4. It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls.

Which of the following is not a primary purpose of audit documentation? To coordinate the audit To assist in preparation of the audit report To support the financial statements To provide evidence of the audit work performed

To support the financial statements

During an audit engagement, pertinent data are compiled and included in the audit files. The audit files primarily are considered to be evidence supporting financial statements. a client-owned record of conclusions reached by the auditors who performed the engagement. support for the auditor's representations as to compliance with auditing standards. a record to be used as a basis for the following year's engagement.

support for the auditor's representations as to compliance with auditing standards.

For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent in planning stage, as a substantive test, in the completion stage yes no no no yes no no yes yes yes no yes

yes no yes

In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 will have a material effect on an entity's income statement, but that misstatements will have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it is appropriate to design audit procedures that are expected to detect misstatements that aggregate $20,000. $15,000. $10,000. $30,000.

$10,000.

6-34 (Objective 6-10) The following (1 through 16) are the balance-related and transaction-related audit objectives. Balance-Related Audit Objectives Existence Completeness Accuracy Cutoff Detail tie-in Realizable value Classification Rights and obligations Presentation Transaction-Related Audit Objectives Occurrence Completeness Accuracy Classification Timing Posting and summarization Presentation Required Identify the specific audit objective (1 through 16) that each of the following specific audit procedures (a. through l.) satisfies in the audit of sales, accounts receivable, and cash receipts for fiscal year ended December 31, 2019. Examine a sample of electronic sales invoices to determine whether each order has been shipped, as evidenced by a shipping document number. Add all customer balances in the accounts receivable trial balance and agree the amount to the general ledger. For a sample of sales transactions selected from the sales journal, verify that the amount of the transaction has been recorded in the correct customer account in the accounts receivable subledger. Inquire of the client whether any accounts receivable balances have been pledged as collateral on long-term debt and determine whether all required information is included in the footnote description for long-term debt. For a sample of shipping documents selected from shipping records, trace each shipping document to a transaction recorded in the sales journal. Discuss with credit department personnel the likelihood of collection of all accounts as of December 31, 2019, with a balance greater than $100,000 and greater than 90 days old as of year end. Examine sales invoices for the last five sales transactions recorded in the sales journal in 2019 and examine shipping documents to determine they are recorded in the correct period. For a sample of customer accounts receivable balances at December 31, 2019, examine subsequent cash receipts in January 2020 to determine whether the customer paid the balance due. Determine whether risks related to accounts receivable are clearly and adequately disclosed. Use audit software to total sales in the sales journal for the month of July and trace postings to the general ledger. Send letters to a sample of accounts receivable customers to verify whether they have an outstanding balance at December 31, 2019. Determine whether long-term receivables and related party receivables are reported separately in the financial statements.

6-34 AUDIT PROCEDURE BALANCE-RELATEDAUDITOBJECTIVE TRANSACTIONRELATEDAUDITOBJECTIVE a. Examine a sample of electronic sales invoices to determine whether each one has an associated shipping document number. (10) Occurrence b. Add all customer balances in the accounts receivable trial balance and agree the amount to the general ledger. (5) Detail Tie-In c. For a sample of sales transactions selected from the sales journal, verify that the amount of the transaction has been recorded in the correct customer account in the accounts receivable subledger. (15) Posting and summarization d. Inquire of the client whether any accounts receivable balances have been pledged as collateral on long-term debt and determine whether all required information is included in the footnote description for long-term debt. (2) Completeness (of disclosure) (8) Rights (9) Presentation e. For a sample of shipping documents selected from shipping records, trace each shipping document to a transaction recorded in the sales journal. (11) Completeness f. Discuss with credit department personnel the likelihood of collection of all accounts as of December 31, 2019, with a balance greater than $100,000 and greater than 90 days old as of year-end. (6) Realizable value g. Examine sales invoices for the last five sales transactions recorded in the sales journal in 2019 and examine shipping documents to determine they are recorded in the correct period. (14) Timing h. For a sample of customer accounts receivable balances for December 31, 2019, examine subsequent cash receipts in January 2020 to determine whether the customer paid the balance due. (1) Existence (6) Realizable value i. Determine whether risks related to accounts receivable are clearly and adequately disclosed. (9) Presentation j. Use audit software to total sales in the sales journal for the month of July and trace postings to the general ledger. (15) Posting and summarization k. Send letters to a sample of accounts receivable customers to verify whether they have an outstanding balance at December 31, 2019 (1) Existence l. Determine whether long-term receivables and related party receivables are reported separately in the financial statements. (7) Classification

Which of the following types of audit evidence is generally the most reliable? A bank confirmation A bank statement Analytical procedures Inquiries of the audit committee

A bank confirmation

1-17 1-17 (Objective 1-3) Monterrey Corporation has an existing loan in the amount of $7 million with an annual interest rate of 6.5%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Monterrey Corporation's existing loan agreement with a new one. Southwest National Bank has offered to loan Monterrey $7 million at a rate of 5.5% but requires Monterrey to provide financial statements that have been reviewed by a CPA firm. First City Bank has offered to loan Monterrey $7 million at a rate of 4.5% but requires Monterrey to provide financial statements that have been audited by a CPA firm. Monterrey Corporation's controller approached a CPA firm and was given an estimated cost of $45,000 to perform a review and $80,000 to perform an audit. Explain why the interest rate for the loan that requires a review report is lower than that for the loan that does not require a review. Explain why the interest rate for the loan that requires an audit report is lower than the interest rate for the other two loans. Calculate Monterrey Corporation's annual costs under each loan agreement, including interest and costs for the CPA firm's services. Indicate whether Monterrey should keep its existing loan, accept the offer from Southwest National Bank, or accept the offer from First City Bank. Assume that Southwest National Bank has offered the loan at a rate of 5.5% with a review, and the cost of the audit has increased to $125,000 due to new auditing standards requirements. Indicate whether Monterrey should keep its existing loan, accept the offer from Southwest National Bank, or accept the offer from First City Bank. Discuss why Monterrey may desire to have an audit, ignoring the potential reduction in interest costs. Explain how a strategic understanding of the client's business may increase the value of the audit service.

1. The interest rate for the loan that requires a review report is lower than the loan that did not require a review because of lower information risk. A review report provides moderate assurance to financial statement users, which lowers information risk. An audit report provides further assurance and lower information risk. As a result of reduced information risk, the interest rate is lowest for the loan with the audit report. 2. Given these circumstances, Monterrey should select the loan from First City Bank that requires an annual audit. In this situation, the additional cost of the audit is less than the reduction in interest due to lower information risk. The following is the calculation of total costs for each loan: LENDER CPA SERVICE COST OF CPA SERVICES ANNUAL INTEREST ANNUAL LOAN COST Existing loan None 0 $ 455,000 $ 455,000 Southwest National Bank Review $ 45,000 $ 385,000 $ 430,000 First City Bank Audit $ 80,000 $ 315,000 $ 395,000 3. Monterrey should select the loan from Southwest National Bank due to the higher cost of the audit and the reduced interest rate for the loan from Southwest National Bank. The following is the calculation of total costs for each loan: LENDER CPA SERVICE COST OF CPA SERVICES ANNUAL INTEREST ANNUAL LOAN COST Existing loan None 0 $ 455,000 $ 455,000 Southwest National Bank Review $ 45,000 $ 385,000 $ 430,000 First City Bank Audit $125,000 $ 315,000 $ 440,000 4. Monterrey may desire to have an audit because of the many other benefits that an audit provides. The audit will provide Monterrey's management with assurance about annual financial information used for decision-making purposes. The audit may detect errors or fraud, and provide management with information about the effectiveness of controls. In addition, the audit may result in recommendations to management that will improve efficiency or effectiveness. 5. The auditor must have a thorough understanding of the client and its environment, including the client's e-commerce technologies, industry, regulatory and operating environment, suppliers, customers, creditors, and business strategies and processes. This thorough analysis helps the auditor identify risks associated with the client's strategies that may affect whether the financial statements are fairly stated. This strategic knowledge of the client's business often helps the auditor identify ways to help the client improve business operations, thereby providing added value to the audit function.

Compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and 1. adherence to specific rules or procedures. 2. accuracy. 3. evaluation. 4. internal control.

1. adherence to specific rules or procedures.

The major reason an independent auditor gathers audit evidence is to 1.form an opinion on the financial statements. 2.detect fraud. 3.evaluate management. 4.assess control risk.

1.form an opinion on the financial statements.

Because of the risk of material misstatement, an audit should be planned and performed with an attitude of 1.professional skepticism. 2.independent integrity. 3.objective judgment. 4.impartial conservatism.

1.professional skepticism.

Which of the following best describes what is meant by U.S. auditing standards? 1. Acts to be performed by the auditor 2. Measures of the quality of the auditor's performance 3. Procedures to be used to gather evidence to support financial statements 4. Audit objectives generally determined on audit engagements

2. Measures of the quality of the auditor's performance

One of a CPA firm's basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this objective is provided through 1. continuing professional education. 2. a system of quality control. 3. a system of peer review. 4. compliance with generally accepted reporting standards.

2. a system of quality control.

Which of the following best describes the reason why an independent auditor reports on financial statements? 1.A misappropriation of assets may exist, and it is more likely to be detected by independent auditors. 2.Different interests may exist between the company preparing the statements and the persons using the statements. 3.A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work. 4.Poorly designed internal controls may be in existence.

2.Different interests may exist between the company preparing the statements and the persons using the statements.

Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures? 1. Complying with laws and regulations 2. Using statistical sampling techniques 3. Managing human resources 4. Considering audit risk and materiality

3. Managing human resources

Who establishes auditing standards applicable to private companies and other nonpublic entities in the U.S.? 1. The Private Company Audit Standards Board 2. The Financial Accounting Standards Board 3. The Auditing Standards Board of the AICPA 4. The Public Company Accounting Oversight Board

3. The Auditing Standards Board of the AICPA

Which of the following engagements is most likely to be considered an operational audit? 1. The auditor determines whether the organization is following provisions of laws and regulations. 2. The auditor examines information presented in an entity's financial statements to determine whether the financial statements are presented fairly in accordance with the applicable financial reporting framework. 3. The auditor evaluates the organization's efficiency in processing payments. 4. The auditor assists the client in preparation of financial statements.

3. The auditor evaluates the organization's efficiency in processing payments.

Operational audits generally have been conducted by internal auditors and governmental audit agencies but may be performed by certified public accountants. A primary purpose of an operational audit is to provide 1. a means of assurance that internal accounting controls are functioning as planned. 2. the results of internal examinations of financial and accounting matters to a company's top-level management. 3. a measure of management performance in meeting organizational goals. 4. aid to the independent auditor who is conducting the audit of the financial statements.

3. a measure of management performance in meeting organizational goals.

The Public Company Accounting Oversight Board (PCAOB) has the duty to 1. select the public accounting firm for the issuer's annual audit. 2. establish rules related to the preparation of audit reports for nonissuers. 3. conduct investigations concerning registered public accounting firms. 4. conduct disciplinary proceedings for nonpublic accounting firms.

3. conduct investigations concerning registered public accounting firms.

In a financial statement audit, the auditor obtains a reasonable level of assurance about whether the financial statements are free of material misstatement in order to express an opinion. In order to obtain reasonable assurance, the auditor must 1. have prior experience in the industry in which the audit client operates. 2. examine all documents available that support the financial statements. 3. obtain sufficient audit evidence. 4. test controls around significant transaction cycles.

3. obtain sufficient audit evidence.

The Responsibilities principle underlying AICPA auditing standards includes a requirement that 1. the audit be adequately planned and supervised. 2. the auditor's report state whether or not the financial statements conform to generally accepted accounting principles. 3. professional judgment be exercised by the auditor. 4. informative disclosures in the financial statements be reasonably adequate.

3. professional judgment be exercised by the auditor.

Which of the following professional services is an attestation engagement? 1. A consulting service engagement to provide computer-processing advice to a client 2. The preparation of financial statements from a client's financial records 3. An income tax engagement to prepare federal and state tax returns 4. An engagement to report on compliance with statutory requirements

4. An engagement to report on compliance with statutory requirements

Which of the following provides authoritative guidance for the auditor of a nonpublic company? 1. An article in the Journal of Accountancy that discusses new audit requirements 2. Information obtained from continuing professional education programs 3. Publication from state CPA societies that provides questions and answers on frequently asked audit questions 4. Statements on Auditing Standards

4. Statements on Auditing Standards

Which of the following statements describes why a properly designed and executed audit may not detect a material misstatement in the financial statements resulting from fraud? The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole. Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion. An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning fraud. The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional misstatements.

Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion.

Which of the following will most likely indicate the existence of related parties? Writing down obsolete inventory prior to year end Failing to correct deficiencies in the client's internal control An unexplained increase in gross margin Borrowing money at a rate significantly below the market rate

Borrowing money at a rate significantly below the market rate

The nature and extent of a CPA firm's quality control policies and procedures depend on

CPA firm size, the nature of the CPA firm's practice, cost-benefit considerations

Which of the following types of documentary evidence should the auditor consider to be the most reliable? Confirmation of an account payable balance mailed by and returned directly to the auditor A sales invoice issued by the client and supported by a delivery receipt from an outside trucker A check, issued by the company and bearing the payee's endorsement, that is included with the bank statements mailed directly to the auditor An audit schedule prepared by the client's controller and reviewed by the client's treasurer

Confirmation of an account payable balance mailed by and returned directly to the auditor

Which of the following is least likely to be included in the auditor's engagement letter? Details about the preliminary audit strategy Overview of the objectives of the engagement Statement that management is responsible for the financial statements Description of the level of assurance obtained when conducting the audit

Details about the preliminary audit strategy

Which of the following procedures would a CPA least likely perform during the planning stage of the audit? Determine the timing of testing Take a tour of the client's facilities Perform inquiries of outside legal counsel regarding pending litigation Determine the effect of information technology on the audit

Perform inquiries of outside legal counsel regarding pending litigation

Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence? Vendor's invoice Bank statement obtained from the client Prenumbered sales invoices Computations made by the auditor

Prenumbered sales invoices

Which of the following would not be considered to be an analytical procedure? Estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked Projecting the error rate by comparing the results of a statistical sample with the actual population characteristics Computing accounts receivable turnover by dividing credit sales by the average net receivables Developing the expected current-year sales based on the sales trend of the prior 5 years

Projecting the error rate by comparing the results of a statistical sample with the actual population characteristics

Which of the following circumstances would most likely pose the greatest risk in accepting a new audit engagement? Staff will need to be rescheduled to cover this new client. There will be a client-imposed scope limitation. The firm will have to hire a specialist in one audit area. The client's financial reporting system has been in place for 10 years.

There will be a client-imposed scope limitation.

When approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining whether the predecessor's work should be used. the company follows the policy of rotating its auditors. in the predecessor's opinion, internal control of the company has been satisfactory. the engagement should be accepted.

the engagement should be accepted.

The auditor's responsibility regarding material misstatements caused by fraud is less than the auditor's responsibility regarding material misstatements caused by error. greater than the auditor's responsibility regarding material misstatements caused by error. the same as the auditor's responsibility regarding material misstatements caused by error. either less than or greater than the auditor's responsibility regarding material misstatements caused by error, depending on the circumstances.

the same as the auditor's responsibility regarding material misstatements caused by error.

6-32 (Objectives 6-8, 6-10) The following are specific balance-related audit objectives applied to the audit of accounts receivable (a. through i.) and management assertions about account balances (1 through 6). The list referred to in the specific balance-related audit objectives is the list of the accounts receivable from each customer at the balance sheet date. Specific Balance-Related Audit Objective There are no unrecorded receivables. Uncollectible accounts have been provided for. Receivables that have become uncollectible have been written off. All accounts on the list are expected to be collected within 1 year. The total of the amounts on the accounts receivable listing agrees with the general ledger balance for accounts receivable. Accounts receivable are appropriately aggregated and clearly described in the financial statements. All accounts on the list arose from the normal course of business and are not due from related parties. Sales cutoff at year end is proper. Receivables have not been sold or discounted. Management Assertion About Account Balances Existence Completeness Accuracy, valuation, and allocation Classification Rights and obligations Presentation

-32 SPECIFIC BALANCE-RELATED AUDITOBJECTIVE MANAGEMENTASSERTION COMMENTS a. There are no unrecorded receivables. 2. Completeness Unrecorded transactions or amounts deal with the completeness objective. b. Uncollectible accounts have been provided for. 3. Accuracy, valuation, and allocation Providing for uncollectible accounts concerns whether the allowance for uncollectible accounts is adequate. It is part of the realizable value objective and the accuracy, valuation, and allocation assertion. c. Receivables that have become uncollectible have been written off. 3. Accuracy, valuation, and allocation This is part of the realizable value objective and the accuracy, valuation and allocation assertion. There may also be some argument that this is part of the existence objective and assertion. Accounts that are uncollectible are no longer valid assets. d. All accounts on the list are expected to be collected within one year. 4. Classification Accounts that are not expected to be collected within a year should be classified as long-term receivables. It is therefore included as part of the classification objective and assertion. e. The total of the amounts on the accounts receivable listing agrees with the general ledger balance for accounts receivable. 3. Accuracy, valuation, and allocation This is part of the detail tie-in objective and is part of the accuracy, valuation, and allocation assertion. f. Accounts receivable are appropriately aggregated and clearly described in the financial statements. 6. Presentation This relates to the proper aggregation of accounts receivable in the financial statements and the related description and therefore is a part of the presentation assertion. g. All accounts on the list arose from the normal course of business and are not due from related parties. 4. Classification Concerns the classification of accounts receivable and is therefore a part of the classification assertion. h. Sales cutoff at year- end is proper. 3. Accuracy, valuation, and allocation Sales (and therefore accounts receivable) cutoff is a part of the cutoff objective and therefore part of the accuracy, valuation, and allocation assertion. i. Receivables have not been sold or discounted. 5. Rights and obligations Receivables not being sold or discounted concerns the rights and obligations objective and assertion.

Watch employees count inventory to determine whether company procedures are being followed. Count a sample of inventory items and record the amount in the audit files. Calculate the ratio of sales commission expense to sales as a test of sales commissions. Review the accounts receivable with the credit manager to evaluate their collectibility. Compare a duplicate sales invoice with the sales journal for customer name and amount. Obtain a written statement from a bank stating that the client has $15,671 on deposit and liabilities of $500,000 on a demand note. Add the sales journal entries to determine whether they were correctly totaled. Obtain a letter from the client's attorney addressed to the CPA firm stating that the attorney is not aware of any existing lawsuits. Extend the cost of inventory times the quantity on an inventory listing to test whether it is accurate. Obtain a letter from an insurance company to the CPA firm stating the amount of the fire insurance coverage on buildings and equipment. Examine an insurance policy stating the amount of the fire insurance coverage on buildings and equipment. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year. Obtain information about internal control by requesting the client to fill out a questionnaire. Trace the total in the cash disbursements journal to the general ledger. Examine a piece of equipment to make sure that a major acquisition was actually received and is in operation. Examine corporate minutes to determine the authorization of the issue of bonds. Obtain a letter from management stating that there are no unrecorded liabilities. Review the total of repairs and maintenance for each month to determine whether any month's total was unusually large.

1. (8) observation 2. (1) physical examination 3. (4) analytical procedures 4. (5) inquiries of client 5. (3) inspection 6. (2) confirmation 7. (6) recalculation 8. (2) confirmation 9. (6) recalculation 10. (2) confirmation 11. (3) inspection 12. (4) analytical procedures 13. (5) inquiries of client 14. (7) reperformance 15. (1) physical examination 16. (3) inspection 17. (5) inquiries of client 18. (4) analytical procedures

1-22 (Objectives 1-3, 1-5) Dave Czarnecki is the managing partner of Czarnecki and Hogan, a medium-sized local CPA firm located outside of Chicago. Over lunch, he is surprised when his friend Juarez Foley asks him, "Doesn't it bother you that your clients don't look forward to seeing their auditors each year?" Dave responds, "Well, auditing is only one of several services we provide. Most of our work for clients does not involve financial statement audits, and our audit clients seem to like interacting with us." Identify ways in which a financial statement audit adds value for clients. List services other than audits that Czarnecki and Hogan likely provides. Assume Czarnecki and Hogan has hired you as a consultant to identify ways in which they can expand their practice. Identify at least one additional service that you believe the firm should provide and explain why you believe this represents a growth opportunity for CPA firms.

1. Financial statement audits reduce information risk, which lowers borrowing costs. An audit also provides assurances to management about information used for decision-making purposes and may also provide recommendations to improve efficiency or effectiveness of operations. 2. Czarnecki and Hogan likely provide tax services, accounting services, and management advisory services. They may also provide additional assurance and attestation services other than audits of financial statements. 3. Student answers will vary. They may identify new types of information that require assurance, such as environmental or corporate responsibility reporting. Students may also identify opportunities for consulting or management advisory services, such as assistance with the adoption of International Financial Reporting Standards.

Which of the following attributes is likely to be unique to the audit work of CPAs as compared to the work performed by practitioners of other professions? 1. Independence 2. Competence 3. Due professional care 4. Complex body of knowledge

1. Independence

An auditor of an entity subject to the rules of the SEC must conduct the financial statement audit in accordance with 1. PCAOB standards. 2. Statements on Standards for Accounting and Review Services. 3. International Auditing Standards. 4. Generally Accepted Government Auditing Standards.

1. PCAOB standards.

2-21 (Objective 2-6, 2-7) The following questions require you to access AICPA standards (www.aicpa.org), PCAOB auditing standards (pcaobus.org), and IAASB auditing standards (www.iaasb.org). Your audit supervisor stated it was important for you to understand AU-C 315. Which organization is the source of the standard? What is the subject of the standard? The PCAOB website has a reference tool that allows you to find analogous ASB standards and IAASB standards. What is the analogous AICPA (ASB) standard for PCAOB AS 2305? What is the analogous IAASB standard? Explain. Your audit supervisor indicated that you would be relying on work done by internal auditors and suggested that you look at SAS No. 128. What AU-C section is associated with SAS No. 128?

AU-C 315 is an AICPA standard that address understanding the entity and its environment and assessing the risk of material misstatement. PCAOB standard AS 2305: Substantive Analytical Procedures is analogous to AICPA standard AU-C 520: Analytical Procedures and ISA 520: Analytical Procedures. Note that the number and title of the AICPA and IAASB standard are identical. SAS No. 128: Using the Work of Internal Auditors is AU-C Section 610.

Briefly outline key points that you would make in your presentation to address these questions. 2-19 (Objective 2-6) For each engagement described below, indicate whether the engagement is likely to be conducted under international auditing standards, AICPA auditing standards, or PCAOB auditing standards. An audit of a public company headquartered in the U.S. listed only on U.S. exchanges. An audit of a not-for-profit organization with operations in Pennsylvania. An audit of a private company in the U.S. with public debt traded on a U.S. exchange. An audit of a U.S. private company to be used for a loan from a publicly traded bank. An audit of a German private company with public debt in Germany. An audit of an international nonprofit relief agency headquartered in Switzerland. An audit of a U.S. broker-dealer registered with the SEC. An audit of a Mexico-based company whose stock is listed on stock exchanges in the U.S. and whose financial statements will be filed with the SEC. An audit of a U.S. public company that is a subsidiary of a Japanese company that will be used for reporting by the parent company in Japan.

An audit of a public company headquartered in the U.S. listed only on U.S. exchanges. An audit of a not-for-profit organization with operations in Pennsylvania. An audit of a private company in the U.S. with public debt traded on a U.S. exchange. An audit of a U.S. private company to be used for a loan from a publicly traded bank. An audit of a German private company with public debt in Germany. An audit of an international nonprofit relief agency headquartered in Switzerland. An audit of a U.S. broker-dealer registered with the SEC. An audit of a Mexico-based company whose stock is listed on stock exchanges in the U.S. and whose financial statements will be filed with the SEC. An audit of a U.S. public company that is a subsidiary of a Japanese company that will be used for reporting by the parent company in Japan.

Which of the following presumptions is correct about the reliability of audit evidence? Information obtained indirectly from outside sources is the most reliable audit evidence. To be reliable, audit evidence should be convincing rather than merely persuasive. Reliability of audit evidence refers to the amount of corroborative evidence obtained. Effective internal control provides more assurance about the reliability of audit evidence.

Effective internal control provides more assurance about the reliability of audit evidence.

6-33 (Objectives 6-8, 6-9) The following are specific transaction-related audit objectives applied to the audit of cash disbursement transactions (a. through f.), management assertions about classes of transactions and events and related disclosures (1 through 6), and general transaction-related audit objectives (7 through 13). Specific Transaction-Related Audit Objective Existing cash disbursement transactions are recorded. Recorded cash disbursement transactions are for the amount of goods or services received and are correctly recorded. Cash disbursement transactions are properly included in the accounts payable master file and are correctly summarized. Recorded cash disbursements are for goods and services actually received. Cash disbursement transactions are properly classified. Cash disbursement transactions are recorded on the correct dates. Management Assertion About Classes of TransactionsGeneral Transaction-Related Audit Objective Occurrence Completeness Accuracy Classification Cutoff Presentation Occurrence Completeness Accuracy Posting and summarization Classification Timing Presentation Required Explain the differences among management assertions about classes of transactions and events and related disclosures, general transaction-related audit objectives, and specific transaction-related audit objectives and their relationships to each other. For each specific transaction-related audit objective, identify the appropriate management assertion. For each specific transaction-related audit objective, identify the appropriate general transaction-related audit objective.

Management assertions are implied or expressed representations by management, in this case about the classes of transactions and related disclosures in the financial statements. AICPA auditing standards identify six assertions about classes of transactions that are stated in the problem. These assertions are the same for every transaction cycle and account. General transaction-related audit objectives are essentially the same as management assertions, but they are expanded somewhat to help the auditor decide which audit evidence is necessary to satisfy the management assertions. The accuracy and posting and summarization objectives are both related to the accuracy assertion. Specific transaction-related audit objectives are determined by the auditor for each general transaction-related audit objective. These are done for each transaction cycle to help the auditor determine the specific amount of evidence needed for that cycle to satisfy the general transaction-related audit objectives. b. and c. The easiest way to do this problem is to first identify the general transaction-related audit objective for each specific transaction-related audit objective. It is then easy to determine the management assertion using Table 6-4 (p. 169 in text) as a guide. SPECIFIC TRANSACTION-RELATED AUDIT OBJECTIVE b.MANAGEMENTASSERTION c.GENERALTRANSACTION-RELATED AUDITOBJECTIVE a. Existing cash disbursement transactions are recorded. 2. Completeness 8. Completeness b. Recorded cash disbursement transactions are for the amount of goods or services received and are correctly recorded. 3. Accuracy 9. Accuracy c. Cash disbursement transactions are properly included in the accounts payable master file and are correctly summarized. 3. Accuracy 10. Posting and summarization d. Recorded cash disbursements are for goods and services actually received. 1. Occurrence 7. Occurrence e. Cash disbursement transactions are properly classified. 4. Classification 11. Classification f. Cash disbursement transactions are recorded on the correct dates. 5. Cutoff 12. Timing

The following questions deal with materiality. Choose the best response. Which one of the following statements is correct concerning the concept of materiality? Materiality is determined by reference to guidelines established by the AICPA. Materiality depends only on the dollar amount of an item relative to other items in the financial statements. Materiality depends on the nature of an item rather than the dollar amount. Materiality is a matter of professional judgment.

Materiality is a matter of professional judgment.

An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards? Misappropriation of an asset or groups of assets Clerical mistakes in the accounting data underlying the financial statements Mistakes in the application of accounting principles Misinterpretation of facts that existed when the financial statements were prepared

Misappropriation of an asset or groups of assets

What assurance does the auditor provide that errors and fraud that are material to the financial statements will be detected?

Reasonable errors, reasonable fraud

Sarah O'Hann enjoyed taking her first auditing course as part of her undergraduate accounting program. While at home during her semester break, she and her father discussed the class, and it was clear that he didn't really understand the nature of the audit process as he asked the following questions: What is the main objective of the audit of an entity's financial statements? Given the CPA firm is auditing financial statements, why would they need to understand anything about the client's business? What does the auditor do in an audit other than verify the mathematical accuracy of the numbers in the financial statements? The audit represents the CPA firm's guarantee about the accuracy of the financial statements, right? Isn't the auditor's primary responsibility to detect all kinds of fraud at the client?

The main objective of an audit of financial statements is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion in a written report on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework. b. Each entity faces a number of risks unique to the nature of its business and industry. The types of operations, the extent of regulation, how the organization obtains capital to fund its business model, and the nature of accounts in the financial statements, among other factors, result in different types of risks that could lead to material misstatements. In addition, there are unique accounting standards for certain industries that impact how transactions, accounts, and disclosures are reported in financial statements. Thus, a thorough understanding of the client's business is critical to assessing the risk of material misstatements in the financial statements when planning the audit. c. The auditor is responsible for obtaining sufficient appropriate audit evidence about whether the financial statements are free of material misstatements. In addition to understanding whether the amounts reported in the financial statements are mathematically accurate, the auditor obtains other types of information to determine that the amounts reported represent valid transactions and accounts and that all valid transactions and accounts are included. Evidence is also gathered to determine that the entity has the rights to assets and has the obligation to repay liabilities reflected in those financial statements and whether the correct disclosures are included in the financial statements as required by accounting standards. d. No. In an audit of the financial statements, the auditor performs audit procedures to obtain reasonable assurance about whether the financial statements contain material misstatements. While a high level of assurance, reasonable assurance is less than a guarantee―which implies absolute (100%) assurance. In an audit, the auditor issues an opinion on whether the financial statements are presented fairly, but the auditor is not guaranteeing that the financial statements are accurate with certainty. e. No. Fraud is a broad legal concept that describes any intentional deceit meant to deprive another person or party of their property or rights. The auditor does not take responsibility for detecting all types of fraud. Instead, the auditor performs auditing procedures to obtain reasonable assurance that the financial statements do not contain material misstatements, whether due to fraud or error. Thus, the auditor is concerned with detecting fraud that leads to a material misstatement. The auditor is not responsible for detecting fraud that does not lead to a material misstatement.

When determining the auditor's or management's responsibility for compliance with laws and regulations during an audit, which of the following statements below would be incorrect? The auditor is not responsible for preventing noncompliance with laws and regulations. Management and those charged with governance are responsible for ensuring that the company's operations are conducted in accordance with all applicable laws and regulations. The auditor provides reasonable assurance that the financial statements are free of material misstatement due to noncompliance with laws and regulations. The auditor is expected to detect the client's noncompliance with all laws and regulations affecting transaction cycles under review during the audit itself.

The auditor is expected to detect the client's noncompliance with all laws and regulations affecting transaction cycles under review during the audit itself.

In which of the following circumstances would an auditor of an issuer be least likely to reevaluate established materiality levels? The materiality level was established based on preliminary financial statement amounts that differ significantly from actual amounts. The client disposed of a major portion of the client's business. The client released third-quarter results before the SEC-prescribed deadline. Significant new contractual arrangements draw attention to a particular aspect of a client's business that is separately disclosed in the financial statements.

The client released third-quarter results before the SEC-prescribed deadline.

Which of the following situations has the best chance of being detected when a CPA compares 2019 revenues and expenses with the prior year and investigates all changes exceeding a fixed percent? An increase in property tax rates has not been recognized in the company's 2019 accrual. The cashier began lapping accounts receivable in 2019. Because of worsening economic conditions, the 2019 provision for uncollectible accounts was inadequate. The company changed its capitalization policy for small tools in 2019.

The company changed its capitalization policy for small tools in 2019.

Which of the following would not have a direct impact in determining the sufficiency of evidence gathered during an audit? The cost-benefit relationship of obtaining the audit evidence The quality of audit evidence obtained The auditor's professional judgment The risk of material misstatement

The cost-benefit relationship of obtaining the audit evidence

A client decides not to record an auditor's proposed adjustments that collectively are not material and wants the auditor to issue the report based on the unadjusted numbers. Which of the following statements is correct regarding the financial statement presentation? The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements. The financial statements do not conform with generally accepted accounting principles (GAAP). The financial statements contain unadjusted misstatements that should result in a qualified opinion. The financial statements are free from material misstatement, but disclosure of the proposed adjustment is required in the notes to the financial statements.

The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.

If you were Sarah, how would you respond to each question? 2-17 (Objective 2-8) For each of the following procedures taken from the quality control manual of a CPA firm, identify the applicable element of quality control from Table 2-3 on page 39. All potential new clients are reviewed before acceptance. The review includes consultation with predecessor auditors and background checks. All new clients are approved by the firm management committee, including assessing whether the firm has the technical competence to complete the engagement. The partners accept responsibility for leading and promoting a quality assurance culture within the firm and for providing and maintaining a quality assurance manual and all other necessary practical aids and guidance to support engagement quality. Each office of the firm shall be visited at least annually by review persons selected by the director of accounting and auditing. Procedures to be undertaken by the reviewers are illustrated by the office review program. Appropriate accounting and auditing research requires adequate technical reference materials. Each firm professional has online password access through the firm's website to electronic reference materials on accounting, auditing, tax, SEC, and other technical information, including industry data. Audit engagement team members enter their electronic signatures in the firm's engagement management software to indicate the completion of specific audit program steps. At the end of the audit engagement, the engagement management software will not allow archiving of the engagement file until all audit program steps have been electronically signed. At all stages of any engagement, an effort is made to involve professional staff at appropriate levels in the accounting and auditing decisions. Various approvals of the manager or senior accountant are obtained throughout the audit. Each audit engagement must include a concurring partner review of critical audit decisions. No employee will have any direct or indirect financial interest, association, or relationship (for example, a close relative serving a client in a decision-making capacity) not otherwise disclosed that might be adverse to the firm's best interest. Individual partners submit the nominations of those persons whom they wish to be considered for partner. To become a partner, an individual must have exhibited a high degree of technical competence; must possess integrity, motivation, and judgment; and must have a desire to help the firm progress through the efficient dispatch of the job responsibilities to which he or she is assigned. Through our continuing employee evaluation and counseling program and through the quality control review procedures as established by the firm, educational needs are reviewed and formal staff training programs modified to accommodate changing needs. At the conclusion of practice office reviews, apparent accounting and auditing deficiencies are summarized and reported to the firm's director of personnel.

a. 2-17 All potential new clients are reviewed before acceptance. The review includes consultation with predecessor auditors and background checks. All new clients are approved by the firm management committee, including assessing whether the firm has the technical competence to complete the engagement. b. The partners accept responsibility for leading and promoting a quality assurance culture within the firm and for providing and maintaining a quality assurance manual and all other necessary practical aids and guidance to support engagement quality. c. Each office of the firm shall be visited at least annually by review persons selected by the director of accounting and auditing. Procedures to be undertaken by the reviewers are illustrated by the office review program. d. Appropriate accounting and auditing research requires adequate technical reference materials. Each firm professional has online password access through the firm's website to electronic reference materials on accounting, auditing, tax, SEC, and other technical information, including industry data. e. Audit engagement team members enter their electronic signatures in the firm's engagement management software to indicate the completion of specific audit program steps. At the end of the audit engagement, the engagement management software will not allow archiving of the engagement file until all audit program steps have been electronically signed. f. At all stages of any engagement, an effort is made to involve professional staff at appropriate levels in the accounting and auditing decisions. Various approvals of the manager or senior accountant are obtained throughout the audit. g. Each audit engagement must include a concurring partner review of critical audit decisions. h. No employee will have any direct or indirect financial interest, association, or relationship (for example, a close relative serving a client in a decision-making capacity) not otherwise disclosed that might be adverse to the firm's best interest. i. Individual partners submit the nominations of those persons whom they wish to be considered for partner. To become a partner, an individual must have exhibited a high degree of technical competence; must possess integrity, motivation, and judgment; and must have a desire to help the firm progress through the efficient dispatch of the job responsibilities to which he or she is assigned. j. Through our continuing employee evaluation and counseling program and through the quality control review procedures as established by the firm, educational needs are reviewed and formal staff training programs modified to accommodate changing needs. At the conclusion of practice office reviews, apparent accounting and auditing deficiencies are summarized and reported to the firm's director of personnel.

6-27 (Objectives 6-1, 6-3) Auditors provide "reasonable assurance" that the financial statements are "fairly stated, in all material respects." Questions are often raised as to the responsibility of the auditor to detect material misstatements, including misappropriation of assets and fraudulent financial reporting. Required Discuss the concept of "reasonable assurance" and the degree of confidence that financial statement users should have in the financial statements. What are the responsibilities of the independent auditor in the audit of financial statements? Discuss fully, but in this part do not include fraud in the discussion. What are the responsibilities of the independent auditor for the detection of fraud involving misappropriation of assets and fraudulent financial reporting? Discuss fully, including your assessment of whether the auditor's responsibility for the detection of fraud is appropriate.

a. Auditing standards indicate that reasonable assurance is a high level of assurance. Accordingly, financial statement users should have a high degree of confidence in the financial statements. However, reasonable assurance is not an absolute level of assurance, and there is at least some risk that the audited financial statements may include material misstatements. b. The responsibility of the independent auditor is to express an opinion on the financial statements he or she has audited. Inasmuch as the financial statements are the representation of management, responsibility rests with management for the proper recording of transactions in books of account, for the safeguarding of assets, and for the substantial accuracy and adequacy of the financial statements. In developing the basis for his or her opinion, the auditor is responsible for conducting an audit that conforms to auditing standards. These standards constitute the measure of the adequacy of the audit. Those standards require the auditor to obtain sufficient appropriate evidence about material management assertions in the financial statements. The informed judgment of a qualified professional accountant is required of an independent auditor. The auditor must exercise this judgment in selecting the procedures he or she uses in the audit and in arriving at an opinion. In presenting himself or herself to the public as an independent auditor, the auditor is responsible for having the abilities expected of a qualified person in that profession. Such qualifications do not include those of an appraiser, expert in valuation, expert in materials, expert in styles, insurer, or lawyer. The auditor is entitled to rely upon the judgment of experts in these other areas of knowledge and skill. c. Auditors are responsible for obtaining reasonable assurance that material misstatements of the financial statements are detected, whether those misstatements are due to fraud or error. Professional standards acknowledge that it is often more difficult to detect fraud than errors because management or employees perpetrating the fraud attempt to conceal the fraud. That difficulty, however, does not change the auditor's responsibility to properly plan and perform the audit. Auditors are required to specifically assess the risk of material misstatement due to fraud and should consider that assessment in designing the audit procedures to be performed. There has been increased emphasis on auditors' responsibility to evaluate factors that may indicate an increased likelihood that fraud may be occurring. For example, assume that management is dominated by a president who makes most of the major operating and business decisions himself. He has a reputation in the business community for making optimistic projections about future earnings and then putting considerable pressure on operating and accounting staff to make sure those projections are met. He has also been associated with other companies in the past that have gone bankrupt. These factors, considered together, may cause the auditor to conclude that the likelihood of fraud is fairly high. In such a circumstance, the auditor should put increased emphasis on searching for material misstatements due to fraud. The auditor may also uncover circumstances during the audit that may cause suspicions of fraudulent financial reporting. For example, the auditor may find that management has misled the auditor about the age of certain inventory items. When such circumstances are uncovered, the auditor must evaluate their implications and consider the need to modify audit evidence. Adequate internal control should be the principal means of thwarting and detecting misappropriation of assets. To rely entirely on an independent audit for the detection of misappropriation of assets would require expanding the auditor's work to the extent that the cost might be prohibitive. The auditor normally assesses the likelihood of material misappropriation of assets as a part of understanding the entity's internal control and assessing control risk. Audit evidence should be expanded when the auditor finds an absence of adequate controls or failure to follow prescribed procedures, if he or she believes a material fraud could result. Because the auditor's responsibility is limited to material misstatements, we believe that the auditor's responsibility is appropriate. However, some people may take the position that the auditor's responsibility to detect fraud is too great because of the potential for collusion and deception by management. The independent auditor is not an insurer or guarantor. The auditor's implicit obligation is that the audit be performed with due professional skill and care in accordance with auditing standards. A subsequent discovery of fraud that existed during the period covered by the independent audit does not of itself indicate negligence on the auditor's part.

6-28 (Objective 6-4) The following information was obtained from several accounting and auditing enforcement releases issued by the SEC after its investigation of fraudulent financial reporting involving Just for Feet, Inc.: Just for Feet, Inc., was a national retailer of athletic and outdoor footwear and apparel based in Birmingham, AL. The company incurred large amounts of advertising expenses and most vendors offered financial assistance through unwritten agreements with Just for Feet to help pay for these advertising expenses. If Just for Feet promoted a particular vendor's products in one of its advertisements, that vendor typically would consider agreeing to provide an "advertising co-op credit" to the Company to share the costs of the advertisement. Just for Feet offset this co-op revenue against advertising expense on its income statement, thereby increasing its net earnings. Although every vendor agreement was somewhat different, Just for Feet's receipt of advertising co-op revenue was contingent upon subsequent approval by the vendor. If the vendor approved the advertisement, it would usually issue the co-op payment to Just for Feet in the form of a credit memo offsetting expenses on Just for Feet's merchandise purchases from that vendor. The company's CFO, controller, and vice president of operations directed the company's accounting department to book co-op receivables and related revenues that they knew were not owed by certain vendors, including Asics, New Balance, Nike, and Reebok. These fraudulent practices resulted in over $19 million in fictitious pretax earnings being reported, out of total pretax income of approximately $43 million. The SEC ultimately brought charges against a number of senior executives at Just for Feet and some vendor representatives. Required What does it mean to approach an audit with an attitude of professional skepticism? What circumstances related to the accounting treatment of the vendor allowances should increase an auditor's professional skepticism? What factors might have caused the auditor to inappropriately accept the assertions by management that the vendor allowances should be reflected in the financial statements? Develop three probing questions related to the vendor allowances that the auditor should have asked in the audit of Just for Feet's financial statements.

a. Professional skepticism primarily consists of two components: a questioning mind and a critical assessment of the audit evidence. A questioning mindset means the auditor approaches the audit with a "trust but verify" mental outlook, as well as a critical assessment of the evidence that includes asking probing questions and attention to inconsistencies. b. Because the vendor allowance agreements were unwritten, this should have increased the auditor's professional skepticism. In addition, increases in the size of the allowances and the close relationship between Just for Feet and the vendors should have increased professional skepticism. c. Auditors may be inclined to accept client representations because of a natural bias to want to trust the client. In addition, if these allowances had been used in the past, the auditor may have been more inclined to accept them as a regular business practice. d. The following are examples of three probing questions related to the vendor allowances: 1. Are there written agreements or other corroborating evidence that would support the amount of these allowances? 2. Can specific payments or credits be matched to specific vendor allowances? 3. Why are the allowances greater this year compared to the prior year?

Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? a. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements. b. It is management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements. c. It is difficult to prepare financial statements that fairly present a company's financial position, operations, and cash flows without the expertise of an independent auditor. d. It is a customary courtesy that all stockholders of a company receive an independent report on management's stewardship of the affairs of the business.

a. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of existence. completeness. accuracy, valuation, and allocation. rights and obligations.

accuracy, valuation, and allocation.

Analytical procedures used in planning an audit should focus on identifying material weaknesses in internal control. the predictability of financial data from individual transactions. the various assertions that are embodied in the financial statements. areas that may represent specific risks relevant to the audit.

areas that may represent specific risks relevant to the audit.

Although the quantity, type, and content of audit documentation will vary with the circumstances, audit documentation generally will include the copies of those client records examined by the auditor during the course of the engagement. evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit. auditor's comments concerning the efficiency and competence of client management personnel. auditing procedures followed and the testing performed in obtaining audit evidence.

auditing procedures followed and the testing performed in obtaining audit evidence.

1-19 (Objective 1-1) James Burrow is the loan officer for the National Bank of Dallas. National has a loan of $325,000 outstanding to Regional Delivery Service, a company specializing in delivering products of all types on behalf of smaller companies. National's collateral on the loan consists of 25 small delivery trucks with an average original cost of $24,000. Burrow is concerned about the collectibility of the outstanding loan and whether the trucks still exist. He therefore engages Samantha Altman, CPA, to count the trucks, using registration information held by Burrow. She was engaged because she spends most of her time auditing used automobile and truck dealerships and has extensive specialized knowledge about used trucks. Burrow requests that Altman issue a report stating the following: 1. Which of the 25 trucks is parked in Regional's parking lot on the night of June 30, 2019. 2. Whether all of the trucks are owned by Regional Delivery Service. 3. The condition of each truck, using the guidelines of poor, good, and excellent. 4. The fair market value of each truck, using the current "blue book" for trucks, which states the approximate wholesale prices of all used truck models, and also using the poor, good, and excellent condition guidelines. a. The following parts of the definition of auditing are related to the narrative: (1) Altman is being asked to issue a report about qualitative and quantitative information for trucks. The trucks are therefore the information with which the auditor is concerned. (2) There are four established criteria which must be evaluated and reported by Altman: existence of the trucks on the night of June 30, 2019, ownership of each truck by Regional Delivery Service, physical condition of each truck and fair market value of each truck. (3) Samantha Altman will accumulate and evaluate four types of evidence: (a) Count the trucks to determine their existence. (b) Use registration documents held by Burrow for comparison to the serial number on each truck to determine ownership. (c) Examine the trucks to determine each truck's physical condition. (d) Examine the blue book to determine the fair market value of each truck. (4) Samantha Altman, CPA, appears qualified, as a competent, independent person. She is a CPA, and she spends most of her time auditing used automobile and truck dealerships and has extensive specialized knowledge about used trucks that is consistent with the nature of the engagement. (5) The report results are to include: (a) which of the 25 trucks are parked in Regional's parking lot the night of June 30. (b) whether all of the trucks are owned by Regional Delivery Service. (c) the condition of each truck, using established guidelines. (d) fair market value of each truck using the current blue book for trucks.

b. The only parts of the audit that will be difficult for Altman are: (1) Evaluating the condition, using the guidelines of poor, good, and excellent. It is highly subjective to do so. If she uses a different criterion than the "blue book," the fair market value will not be meaningful. Her experience will be essential in using this guideline. (2) Determining the fair market value, unless it is clearly defined in the blue book for each condition.

A successor auditor's inquiries of the predecessor auditor should include questions regarding the number of engagement personnel the predecessor assigned to the engagement. the assessment of the objectivity of the client's internal audit function. communications to management and those charged with governance regarding significant deficiencies in internal control. the response rate for confirmations of accounts receivable.

communications to management and those charged with governance regarding significant deficiencies in internal control.

An auditor will most likely review an entity's periodic accounting for the numerical sequence of shipping documents to ensure all documents are included to support management's assertion about classes of transactions of occurrence. classification. accuracy. completeness.

completeness.

In the audit of accounts payable, an auditor's procedures will most likely focus primarily on management's assertion about account balances of existence. completeness. accuracy, valuation, and allocation. classification.

completeness.

A successor would most likely make specific inquiries of the predecessor auditor regarding specialized accounting principles of the client's industry. the competency of the client's internal audit staff. the uncertainty inherent in applying sampling procedures. disagreements with management as to auditing procedures.

disagreements with management as to auditing procedures.

An auditor most likely would apply analytical procedures in the overall review stage of an audit to identify unusual or unexpected balances that were not previously identified. obtain an understanding of high-risk areas. evaluate the design and implementation of internal control. identify related party transactions that may not have been previously identified.

identify unusual or unexpected balances that were not previously identified.

According to PCAOB audit standards, audit documentation must be retained for one year. three years. five years. seven years.

seven years.