Audit Test #2 Chapter 3

related parties

Auditors should attempt to identify all _____ _____ because transactions with them may not be at "arm's

entity has unusual business risks client refuses to allow contact with the predecessor auditor

An auditor may not accept a prospective client because the ______.

client owes money to the auditor that has the characteristics of a loan spouse of the auditor is an accounting supervisor for the entity

An auditor's independence would be considered impaired if the ______.

understanding as to the reasons for the change of auditors.

Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's:

discuss the timing of the audit procedures with the entity's management.

During the initial planning phase of an audit, a CPA most likely would:

review the work of engagement team members inform engagement team members of their responsibilities

Engagement team members performing supervisory activities should ______.

timing of the work engagement size engagement complexity personnel availability

Factors that should be considered in the determination of staffing requirements for an audit include ______.

determining the audit engagement team requirements ensuring the audit team and firm are in compliance with ethical and independence requirements establishing an understanding with the entity

Generally, the three preliminary engagement activities are ______.

all of the prior year's

Many public accounting firms adopt a policy of not completing the current audit until ______ fees have been paid.

engagement partner

Overall responsibility for an audit engagement rests with the ______.

periodically evaluate whether to continue their relationship with current clients

Public accounting firms should ______.

servation and inspection inquiries of management and others preliminary analytical procedures

Risk assessment procedures include ______.

materiality used to establish a scope for the audit procedures for the individual account balance or disclosures.

Tolerable misstate is:

audit committee

A subgroup of the board of directors that is responsible for the financial reporting and disclosure process is called the

auditor specialist

An individual or organization possessing expertise in a field other than accounting or auditing whose work is used to assist the auditor in obtaining sufficient, appropriate evidence is defined by auditing standards as a(n)

members of the board of directors who are not officers or employees.

As generally conceived, the audit committee of a publicly held company should be made up of:

direct material indirect

Auditing standards distinguish between illegal acts that have _____ and material effects on the financial statements and those that have _____ but _____effects.

reduce the risk of misinterpretation between the two parties

Auditors should establish an understanding with the entity about the terms of the engagement to ______.

any limitation of liability for the auditor or client additional services to be provided relating to regulatory requirements arrangements regarding other services (e.g., assurance, tax, or consulting services) arrangements involving the use of specialists or internal auditors

Engagement letters may include: ______.

audit strategy

Engagement planning involves all of the issues the auditor should consider in developing an overall ______ _______ for conducting the audit.

report functionally to the audit committee and administratively to senior management

Ideally, the head of of internal auditing (chief audit executive) should ______.

review the client's financial information before accepting the engagement

If an entity has not previously been audited, the prospective auditor should ______.

level of competence of the IAF application by the IAF of a systematic and disciplined approach quality control approach of the IAF

If the auditor determines that the work of the internal audit function (IAF) can be used for purposes of the audit, the auditor must evaluate the ______.

competence and objectivity.

If the independent auditors decide that it is efficient to consider how the work performed by the internal auditors may affect the nature, timing, and extent of audit procedures, they should assess the internal auditors':

the role of the client's audit committee using the work of internal auditors the engagement letter

In establishing an understanding about the terms of the engagement with potential clients, ______ should be discussed.

using the work of internal auditors the role of the client's audit committee the engagement letter

In establishing an understanding about the terms of the engagement with potential clients, ______ should be discussed.

Independence Questionnaire

Information about an auditor's financial or business relationships with the firm's clients is documented by having all personnel complete an annual _____

value added

Risk assessment, benchmarking and recommendations based on the assessment of business risk are all examples of

engagement letter

Serving as a contract, the _______ _______ outlines responsibilities and prevents misunderstandings between the auditor and client.

tolerable misstatement

The amount of overall materiality used to plan and perform audit procedures at the account or disclosure level is called

engagement letter

The arrangements reached between the auditor and the entity are formalized in a(n)

tests of details substantive analytical procedures

The categories of substantive procedures are ______.

The work was performed and documented. The objectives of the procedures were achieved The results of the work support the conclusions reached

The engagement partner and manager review the work of engagement team members to evaluate which of the following?

True

True or false: A public accounting firm should investigate a prospective client prior to accepting the engagement.

False

True or false: The audit team a public accounting firm uses for an engagement does not tend to vary from client to client.

False

True or false: The extent of effort that goes into evaluating a new client is normally much less than the decision to continue with an existing client.

have reservations about accepting the client

When a prospective client refuses to permit the predecessor auditor to respond, the successor auditor should ______.

lower

When an entity operates in a highly regulated industry, the auditor would choose a _____ percentage in deciding the appropriate percentage to apply to a selected materiality benchmark.

an understanding of the internal audit function

When determining whether to use the work of the entity's internal auditors, the external auditor must obtain ______.

determine overall materiality for audit purposes.

When planning an audit, an auditor should:

At or near the completion of the audit. and When a significant event occurs.

When should the evaluation of client continuance take place?

The predecessor auditor's fee charged for audit work.

Which of the following is not an inquiry that a successor auditor should make to a predecessor auditor?

The type of audit opinion the auditor expects to issue to the client.

Which of the following should NOT be included in an engagement letter?

Part of the IAF work may include confirming accounts receivables. Materiality and audit risk may determine reliance on the IAF's work. When internal auditors work directly for the auditor, the auditor should supervise their work.

Which of the following statements regarding using an entity's internal audit function (IAF) during an external audit are correct?

The entity's income before taxes for the period-to-date (e.g., 6 months).

Which of the following would an auditor most likely use in determining overall materiality when planning the audit?

An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and fraud.

Which of these statements concerning illegal acts by clients is correct?