Audit Quiz 3

A CPA is conducting the first audit of a non issuers financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessors audit documentation. The procedure is a) acceptable if the client and the predecessor auditor agree to it

a

A client uses a suspense account for unresolved questions whose final accounting has not been determined. If balance remains in the suspense account at year-end, the auditor would be most concerned about a) suspense debits that management believes will benefit future operations

a

After audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up audit documentation review. This second review usually focuses on a) whether the financial statements are consistent with the auditors understanding of the entity

a

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn of which of the following? a) One of the cashiers has been covering a personal embezzlement by lapping

a

An auditor using audit software probably would be least interested in which of the following fields in a computerized perpetual inventory file? a) economic order quantity

a

An auditor's audit documentation will least likely show how the a) clients schedules were prepared

a

An auditors engagement letter most likely will include a) managements acknowledgment of its responsibility for maintaining effective internal control

a

Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to a) permit cross referencing simplify supervisory review

a

Before accepting an engagement to audit a new client, an auditor is required to a) make inquiries of the predecessor auditor after obtaining the consent of the prospective client

a

Each of the following might, by itself, form a valid basis for an auditor to decide to omit a procedure except for the a) difficulty and cost involved in testing a particular item

a

Early appointment of the auditor enables preliminary work to be performed by auditor. This benefits the client because it permits the audit to be performed in a) a more efficient manner

a

If an auditor conducts an audit of financial statements in accordance with applicable auditing standards, which of the following will the auditor most likely detect? a) misposting of recorded transactions

a

In assessing whether to accept a client for an audit engagement, a CPA should consider the (clients business risk, CPA's business risk) a) yes, yes

a

In the confirmation of accounts receivable, the auditor would most likely a) request confirmation of a sample of the inactive accounts

a

One of the primary roles of an engagement work program is to a) serve as a tool for planning and conducting engagement work

a

Ordinarily, the predecessor auditor permits the auditor to review the predecessors audit documentation relating to (contingencies, balance sheet accounts) a) yes, yes

a

Standardized working papers are often used, chiefly because they allow audit documentation to be prepared more a) efficiently

a

The auditor should perform tests of controls when the auditors assessment of the risks of material misstatement includes an expectation of the operating effectiveness of internal control or when a) substantive procedures alone cannot provide sufficient appropriate audit evidence at the relevant assertion level

a

The negative request form of accounts receivable confirmation may be used when (Risk of material misstatement is______, Number of small balance is______, Consideration by the recipient is______) a) low, many, likely

a

The objective of performing analytical procedures in planning an audit is to identify the existence of a) unusual transactions and events

a

The primary difference between an audit of the balance sheet and the audit of the income statement deals with the verification of a) transactions

a

The two requirements crucial to achieving audit efficiency and effectiveness with a personal computer are selecting a) the appropriate audit tasks for personal computer applications and the appropriate software to perform the selected audit tasks

a

When the auditor plans to rely on controls that have changed since they were last tested which of the following courses of action would be most appropriate? a) test the operating effectiveness of such controls in the current audit

a

Which of the following concepts distinguishes the retention of computerized audit documentation from the traditional hard copy form? a) Analyses, conclusions, and recommendations are filed on electronic media and are therefore subject to computer system controls and security procedures

a

Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to provide a reasonable basis for an opinion? a) Auditor Judgement

a

Which of the following is a false statement about the relationship of financial statement assertions and audit procedures? a) the relationship between financial statement assertions and audit procedures should be one-to-one

a

Which of the following is an aspect of scheduling and controlling the audit engagement a) include in the audit plan a column for estimated and actual time

a

Which of the following procedures concerning accounts receivable is an auditor most likely to perform to obtain evidence in support of the effectiveness of controls? a) observing an entity's employee prepare the schedule of past due accounts receivable

a

You have been assigned to audit the maintenance department of an organization. Which of the following is likely to produce the least reliable audit evidence? a) notes on the discussions with mechanics in the maintenance operation

a

A CPA wishes to determine how various issuers have complied with the disclosure requirements of a new financial accounting standard. Which of the following information sources would the CPA most likely consult for this information? b) AICPA accounting trends and techniques

b

An auditor wishes to evaluate the design and perform tests of controls over a clients cash disbursements procedures. If the controls leave no audit trial of documentary evidence, the auditor most likely will test the procedures by b) observation and inquiry

b

Assuming a low assessed risk of material misstatement, which of the following audit procedures would be least likely to be performed? b) search for unrecorded cash receipts

b

Auditors may use positive or negative forms of confirmation requests. An auditor most likely will use b) A combination of the two forms, with the positive form used for trade balances and the negative form for other balances

b

Computer Technology makes it possible to perform paperless audits. For example, in an audit of computer processed customer accounts receivable balances, an auditor might use a personal computer to access the accounts receivable files directly and audit analysis. Which of the following is an advantage of this type of paperless audit of accounts receivable balances b) It allows immediate processing of audit data on a spreadsheet working paper

b

Financial statement audit plans usually should be developed b) after the auditor has established the overall audit strategy

b

In gathering evidence in the performance of substantive procedures, the auditor most likely b) relies on persuasive rather than conclusive evidence in the majority of cases

b

In performing tests of controls, the auditor will normally find that b) the rate of deviations in the sample exceeds the rate of error in the accounting records

b

Most of the auditor's work in forming an opinion on financial statements consists of b) obtaining and evaluating audit evidence

b

Smith Corporation has numerous customers. A customer file is kept on disk storage. Each customer record contains the name, address, credit limit and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow is to b) Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit

b

Tests of controls are concerned primarily with each of the following questions except b) were the controls approved by the board of directors?

b

The PCAOB's AS 1215, Audit Documentation, requires that a complete and final set of audit documentation be assembled for retention as of a date not more than 45 days after the audit report release date. After that date, audit documentation may b) Be added, but no audit documentation may be deleted or discarded

b

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the b) results are consistent with the conclusions to be presented in the auditors report

b

The auditor should perform tests of controls when the auditor's risk assessment includes expectation b) of the operating effectiveness of internal controls

b

The auditor with the final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated form the matters resolution, the CPA firms procedures should enable the assistant to b) document the details of the disagreement with the conclusions reached

b

The components of internal control include b) a process of managing risks relevant to preparing financial statements

b

The in-charge auditor for an audit of an issuer most likely has a supervisory responsibility to explain to the staff assistants b) how the results of various auditing procedures performed by the assistants should be evaluated

b

To obtain an understanding of a continuing client in planning an audit, an auditor most likely would b) read internal audit reports

b

To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would b) Verify the sources and contents of the faxes in telephone calls and letters

b

Using personal computers in auditing may affect the methods used to review the work of staff assistants because b) audit documentation may not contain readily observable details of calculations

b

Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement? b) there will be a client imposed scope limitation

b

Which of the following is required documentation in an audit in accordance with auditing standards? b) an audit plan documenting the procedures to be used to reduce audit risk

b

Which of the following presumptions is least likely to relate to the reliability of audit evidence? b) An auditor's opinion is formed within a reasonable time to achieve a balance between benefit and cost

b

Which of the following statements about audit evidence is true? b) The sufficiency and appropriateness of audit evidence is a matter of professional judgement

b

Which of the following statements is true concerning analytical procedures used as risk assessment procedures? b) analytical procedures used as a risk assessment procedures ordinarily use data aggregated at a high level

b

Which of the following ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion? b) the auditors judgement

b

which of the following statements is most accurate regarding sufficient and appropriate documentation b) sufficient and appropriate documentation should include evidence that it has been reviewed

b

A senior auditor conducted a dual-purpose test on a client's invoice to determine whether the invoice was approved and to ascertain the amount and other terms of the invoice. Which of the following lists two tests that the auditor performed? c) tests of controls and tests of details

c

AU-C 500 describes five generalizations about the reliability of evidence. The situations given below indicate the relative degrees of assurance provided by two types of evidence obtained in different situations. Which describes an exception to one of the generalizations? c) The report of an auditors specialist regarding the valuation of a collection of paintings held as an investment provides greater assurance than the auditors physical observation of the paintings

c

An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. For an auditor of a non issuer, this understanding generally includes c) the auditors responsibility for ensuring that management and those charged with governance are aware of any significant deficiencies or material weaknesses in control that come to the auditors attention

c

An auditor ordinarily uses a working trial balance resembling the financial statements without notes, but containing columns for c) reclassifications and adjustments

c

Analytical procedures used as risk assessment procedures should c) address the risk of material misstatement of revenue due to fraudulent financial reporting

c

Audit documentation that records the procedures used by the auditor to gather evidence should be c) designed to meet the circumstances of the particular engagement

c

Audit planning for an initial audit most likely includes c) performing procedures involving opening balances

c

Auditors often make use of computer programs that perform routine processing functions, such as sorting and merging. These programs are made available by computer companies and others are specifically referred to as c) utility programs

c

Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should c) Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable

c

Confirmation of accounts receivable is a generally accepted auditing procedure. The presumption is that an auditor will request confirmation of accounts receivable. Confirmation is necessary when c) the combined assessed level of inherent and control risk is high

c

In the course of the audit of financial statements for the purpose of expressing an opinion thereon, the auditors will normally prepare a schedule of uncorrected misstatements. The primary purpose served by this schedule is to c) Identify the potential financial statements effects of misstatements that were not considered clearly trivial when discovered

c

Negative confirmation of accounts receivable is less effective that positive confirmation of accounts receivable because c) the auditor cannot infer that all nonrespondents have verified their account information

c

Observation is considered a reliable audit procedure but one that is limited in usefulness. However, it is used in a number of different audit situations. Which of the following statements is true regarding the observation as an audit technique? c) It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place

c

Regardless of the assessed risks of material misstatement, and auditor should perform some c) substantive procedures to restrict detection risk for significant transaction classes

c

Tests of controls in a financial statement audit are least likely to be omitted with regard to c) accounts representing many transactions

c

The scope and nature of an auditor's contractual obligation to a client is ordinarily set fourth in the c) engagement letter

c

To test the effectiveness of controls, an auditor ordinarily selects from a variety of techniques including c) comparison and confirmation

c

Two assertions for which confirmation of accounts receivable balances provides primary evidence are c) rights and obligations and existence

c

Upon discovering material misstatements in a clients financial statements that the client would not revise, a predecessor auditor withdrew from the engagement. Of asked by the auditor about the termination of the engagement, the predecessor auditor should c) suggest that the auditor obtain the clients permission to discuss the reasons

c

When an auditor obtains an understanding of the entity and its environment, including its internal control, which of the following is the most likely order of performing steps A through C below? A= Tests the Controls B= Preparation of a flowchart documenting the understanding of the clients internal control C= Substantive procedures c) BAC

c

Which of the following documentation is not required for an audit accordance with auditing standards? c) A client letter that details the auditors planned field work

c

Which of the following factors does a CPA ordinarily consider in the planning stage of an audit engagement? I. Financial Statement accounts likely to contain a misstatement II. Conditions that require extension of audit tests c) Both I and II

c

Which of the following factors would most likely cause an auditor not to accept a new audit engagement? c) concluding that the entity's management probably lacks integrity

c

Which of the following is an auditor least likely to perform in planning a financial statement audit? c) selecting a sample of vendors invoices for comparison with receiving reports

c

Which of the following is an effective audit planning and control procedure that helps prevent misunderstandings and inefficient use of audit personnel? c) arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information

c

Which of the following is an engagement attribute for an audit of an entity that processes most of its financial data in electronic form without any paper documentation? c) performance of audit tests on a continuous basis

c

Which of the following procedures is not used in tests of controls over purchases? c) confirm inventory held in public warehouses

c

Which of the following procedures is the auditor most likely to perform after accepting an initial audit engagement? c) tour the clients facilities

c

Which of the following statements is an auditor most likely to add to the negative form of confirmation of accounts receivable to encourage timely consideration by the recipient? c) "If you do not report any differences within 15 days, it will be assumed that this statement is correct"

c

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be dissociated form the resolution of the matter. The audit documentation would probably be d) expanded to detail the assistant auditors position and how the difference of opinion was resolved

d

A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses a computer system is that the auditor may d) Access information stored on computer files while having a limited understanding of the clients hardware and software features

d

Although the quantity and content of audit documentation vary with each engagement, an auditor's permanent files most likely include d) analyses of capital stock and the other owners equity accounts

d

An auditor is planning an audit engagement for a new client in a business that is unfamiliar to the auditor. Which of the following would be the least useful source of information for the auditor during the preliminary planning stage, when the auditor is trying to obtain a general understanding of audit problems that might be encountered? d) results of performing substantive procedures

d

An auditor most likely obtains an understanding of a new client to d) identify areas of audit emphasis

d

An auditor would least likely use a computer software to d) assess risk

d

Based on an understanding of internal control completed at an interim date, the auditor assessed the risks of material misstatement at the relevant assertion level and performed interim substantive procedures. The records will most likely be tested again at year end if d) the remaining period is long

d

During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on January 9, Year 2" The auditor would most likely d) verify that the amount was received

d

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely will be included with the client's confirmation letter? d) A client-prepared statement of account showing the details of customers account balance

d

In developing an audit plan, an auditor should d) perform risk assessment procedures

d

In developing written audit plans, an auditor should design specific audit procedures that relate primarily to the d) financial statement assertions

d

In planning the audit engagement, the auditor should consider each of the following except d) the kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed

d

Prior to beginning the field work on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA should d) perform risk assessment procedures

d

Specialized audit software d) may be written in a procedure- oriented language

d

The appropriateness of evidence is available to an auditor is least likely affected by the d) sampling method employed by the auditor to obtain a sample of such evidence

d

The audit working paper that reflects the major components of an amount reported in the financial statements is the d) lead schedule

d

The auditor should establish an overall audit strategy. Which one of the followings statements is most consistent with this requirement? d) the auditor should plan the audit so that it will be performed effectively

d

The element of the audit-planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the d) timing of inventory observation procedures to be performed

d

The most reliable forms of documentary evidence are those documents that are d) authorized by a responsible official

d

The objective of tests of details of transactions performed as tests of controls is to d) evaluate whether internal controls operated effectively

d

Which of the following circumstances would permit an independent auditor an engagement after the close of the fiscal year? d) remedy of limitations resulting from accepting the engagement after the close of the end of the year, such as those relating to the existence of physical inventory

d

Which of the following is in a predecessors audit documentation is the auditor least likely to be interested in reviewing d) analysis of income statement accounts

d

Which of the following is usually included or shown in the audit documentation? d) a summary of how significant findings were addressed

d

Which of the following procedures would provide the most reliable audit evidence? d) inspection of bank statements obtained directly from the clients financial institution

d

Which of the following represents a limitation on the use of generalized audit software (GAS)? d) It can only be used on hardware with compatible operating systems

d

Which of the following statements about evidence is true? d) a clients accounting records cannot be considered sufficient appropriate audit evidence on which to base the auditors opinion

d

Which of the following statements would least likely appear in an auditor's engagement letter? d) after performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement

d

With respect to the auditors planning of a year end audit, which of the following statements is always true? d) it is an acceptable practice to carry out part of the audit interim dates

d