Quiz

Which of the following circumstances would permit an independent auditor to accept an engagement after the close of the fiscal year

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

Moor, CPA, discovers a likely fraud during an audit but concludes that its effects, if any, could not be so material as to affect the opinion. Moor most likely should

Report the finding to the appropriate representatives of the client with the recommendation that it be pursued to a conclusion.

An auditor would be most likely to consider modifying an otherwise unmodified opinion if the clients financial statements include a note on related party transactions

Representing without substantiation that certain related party transactions were consummated on terms equivalent to those obtainable in transactions with unrelated parties

Analytical procedures are most appropriate when testing which of the following types of transactions?

Operating expense transactions

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

Perform risk assessment procedures

in developing an audit plan, an auditor should

Perform risk assessment procedures.

Which of the following statements about materiality is most likely to be true?

Performance materiality is less than materiality for the financial statements as a whole

Which of the following is an engagement attribute for an audit of an entity that processes most paper documentation?

Performance of audit tests on a continuous assertion.

Audit planning for an initial audit most likely includes

Performing procedures involving opening balances

Audit working papers are indexed by means of reference numbers. the primary purpose of indexing is to

Permit cross referencing simplify supervisor review

A basic premise underlying analytical procedures is that

Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary

Because of the risk of material misstatement due to fraud, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

Professional skepticism

Three conditions are generally present in the client's organization when fraud occurs. Those conditions include each of the following except a(n)

Professional skepticism about the likelihood of fraud

To obtain an understanding of a continuing client in planning an audit, an auditor most likely would

Read internal audit reports

Which of the following must an auditor document with respect to the consideration of fraud in a financial statement audit?

Reasons for the identifying improper revenue recognition as a fraud risk

An auditor ordinarily uses a working trial balance reassembling the financial statements without notes but containing columns for

Reclassifications and adjustments

The auditor is evaluating the effectiveness of a sales commission plan adopted 12 months earlier. An audit procedure likely to provide strong evidence of the plan's effectiveness is to

Regress monthly indices of external economic conditions against sales for the 2 preceding years and compare predictions with reported sales

Which of the following procedures is the auditor most likely to perform after accepting an initial audit engagement?

Tour the clients facilities

Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except

Tracing transactions through the system to determine whether procedures are being applied as prescribed

The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of

Transactions

Which of the following circumstances most likely will cause an auditor to consider whether material misstatements due to fraud exist in an entity's financial statements?

Transactions selected for testing are not supported by proper documentation

When expressing an unmodified opinion, the auditor who evaluates the audit findings should determine whether

Uncorrected misstatements are material

Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

Unrecorded sales

Which of the following circumstances is most likely to cause an auditor to change an assessment of the risk of material misstatement of the financial statements due to fraud

Unusual discrepancies between the entity's records and confirmation tapes

The objective of performing analytical procedures in planning an audit is to identify the existence of

Unusual transactions and events

During the audit of fair value estimates and disclosures, the auditor most likely should

Use the understanding of the audited entity's process for determining fair value estimates to assess the risks of material misstatement.

Which of the following is the most reliable analytical approach to verification of the year-end financial statement balances of a wholesale business

Verify commission expense by multiplying sales revenue by the company's standard commission rate

Tests of controls are concerned primarily with each of the following questions except

Were the controls approved by the BOD?

Which of the following factors has the least influence on an auditors consideration of the reliability of data for purposes of analytical procedures?

When the data were processed in a computer system or in a manual accounting system

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. the second review usually focuses on

Whether the financial statements are consistent with the auditors understanding of the entity

In gathering evidence in the performance of substantive procedures, the auditor most likely

relies on persuasive rather than conclusive evidence in the majority of cases

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the

results are consistent with the conclusions to be presented in the auditor's reports

Assuming a low assessed risk of material misstatement, which of the following audit procedures would be at least likely to be performed

search for unrecorded cash receipts

One of the primary roles of an engagement work program is to

serve as a tool for planning and conducting engagement work

The auditor should perform tests of controls when the auditors assessment of the risk of material misstatement includes an expectation of the operating effectiveness of internal control or when

substantive procedures alone cannot provide sufficient appropriate audit evidence at the relevant assertion level

which of the following statements about audit evidence is true

the sufficiency and appropriateness of audit evidence is a matter of professional judgment

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

utility programs

During the process of confirming receivables as of December 31st, year 1, a positive confirmation was returned indicating the balance is owed as of December 31st was paid on January 9th, year 2. the auditor would most likely

verify that the amount was received

To reduce the risks associated with accepting fax responses to request for confirmations of account receivable, an auditor most likely would

verify the sources in contents of the faxes in telephone calls to the sender

Which of the following factors does a CPA ordinarily consider in the planning stage of an audit?

- Financial misstatement accounts likely to contain a misstatement - Conditions that require extension of audit tests.

When assessing the risk of material misstatement at a low level, an auditor is required to document the auditor's

- Understanding of the entity's control environment - Yes - Overall responses to assessed risk - Yes

In developing written audit plans, an auditor should design specific audit procedures that relate primarily to the

Financial statement assertions

The risks of material misstatement (RMMs) should be assessed in terms of

Financial statement assertions

A primary advantage of using generalized audit software packages to audit the financial statement of a client that uses a computer system is that the auditor may

Access information stored on computer files while having a limited understanding of the clients hardware and software features

Which of the following documentation is not required for an audit in accordance with auditing standards

A client letter that details the auditors planned field work

In confirming accounts receivable, an auditors decided to confirm customers account balance rather than individual invoices. which of the following most likely will be included with the clients confirmation letter

A client prepared statement of account showing the details of the customers account balance

Which of the following situations represents a risk factor that relates to misstatements arising from misappropriation of assets?

A lack of independent checks

Early appointments of the auditor enables preliminary work to be performed by the auditor. this benefits the client because it permits the audit to be performed in

A more efficient matter

The components of internal control include

A process of managing risks relevant to preparing financial statements

Which of the following would not necessarily be a related party transaction?

A sale to another corporation with a similar name

Which of the following is usually included or shown in the audit documentation

A summary of how significant findings were addressed

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?

AICPA Accounting Trends and Techniques

CPA is conducting the first audit of a non issuers financial statements. the CPA hopes to reduce the audit work by consulting with the predecessors auditor and reviewing the person predecessors audit documentation. This procedure is

Acceptable at the client and the predecessor auditor agree to it

For the fiscal year ending December 31 of the previous year and for the current year, Justin Co. has net sales of $1,000,000 and $2,000,000; average gross receivables of $100,000 and $300,000; and an allowance for uncollectible accounts receivable of $30,000 and $50,000, respectively. If the accounts receivable turnover and the ratio of allowance for uncollectible accounts receivable to gross accounts receivable are calculated, which of the following best represents the conclusions to be drawn?

Accounts receivable turnovers are 10.0 and 6.7, and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.17 respectively. Examine allowance for possible understatement of the allowance.

Tests of controls in a financial statement audit are least likely to be omitted with regard to

Accounts representing many transactions

Analytical procedures performed to assist in forming an overall conclusion suggest that several accounts have unexpected relationships. The results of the procedures most likely indicate that

Additional audit procedures are required

Analytical procedures used as a risk assessment procedures should

Address the risk of material misstatement of revenue due to fraudulent financial reporting

Which of the following statements would least likely appear in the auditors at engagement letter

After performing our preliminary analytical procedures, we discuss with you the other procedures we consider necessary to complete the engagement

Financial statements audit plans usually should be developed

After the auditor has established the overall audit strategy

Which of the following statements reflects an auditor's responsibility for detecting fraud and errors?

An auditor should design the audit to provide reasonable assurance of detecting fraud and errors that are material to the financial statements

Which of the following presumptions is least likely to relate to the reliability of audit evidence

An auditors opinion is formed within a reasonable time to achieve a balance between benefit and cost

What is the definition of fraud in an audit of financial statements?

An intentional act that results in a material misstatement in financial statements that are the subject of an audit.

Although the quantity of content of audit documentation vary with each engagement, an auditors permanent files most likely include

Analyses of capital stock in other owners equity accounts

Which of the following concepts distinguishes the retention of computerized documentation from the traditional hard copy form

Analyses, conclusions, and recommendations are filed on electronic media and are therefore subject to computer system controls and security procedures

Which of the following in a predecessors audit documentation is the auditor least likely to be interested in reviewing

Analysis of income statement accounts

Which of the following statements about analytical procedures is true?

Analytical procedures alone may provide the appropriate level of assurance for some assertions.

Which of the following statements is true concerning analytical procedures used as risk assessment procedures?

Analytical procedures used as risk assessment procedures ordinarily use data aggregated at a high level.

Which of the following is an effective audit planning and control procedure that helps prevent misunderstandings and inefficient use of audit personnel?

Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information

When auditing related party transactions, an auditor places primary emphasis on

Assessing the risks of material misstatement of related party transactions

The acceptance level of detection risk is inversely related to the

Assurance provided by substantive procedures

Using personal computers in auditing may affect the methods used to review the work of staff assistance because

Audit documentation may not contain readily observable details of calculation

Which of the following is required documentation in an audit in accordance with auditing standards

Audit plan documenting the procedures to be used to reduce audit risk

Which of the following statements describes why a properly planned and performed audit may not detect a material misstatement due to fruad?

Audit procedures that are effective for detecting an error may be ineffective for detecting fraud that is concealed through collusion

An auditor referred to the findings of an auditor's external specialist in the auditor's report. This may be an appropriate reporting practice if the

Auditor's report contains a qualified opinion

An auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the

Auditors determination about whether the audit risk can be sufficiently reduced.

The most reliable forms of documentary evidence are those documents that are

Authorized by a responsible official

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 the steps A through C? A=Tests of controls B=Preparation of a flowchart documenting the understanding of the clients internal control C=Substantive procedures

B>A>C

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

Be added, but no audit documentation may be deleted or discarded

An auditor has withdrawn from an audit engagement of an issuer after finding fraud that may materially affect the financial statements. The auditor should set forth the reasons and findings in communication to the

Board of directors

Audit risk at the assertion level consists of inherent risk, control risk, and detection risk. Which of the following statements is true?

Cash has a greater inherent risk than an inventory of coal because it is more susceptible to theft

In auditors audit documentation will least likely show how the

Client's schedules were prepared

in assessing whether to accept a clie....ement comma a CPA should consider the

Clients business risk - yes CPA's business risk - yes

To test the effectiveness of controls, an auditor ordinarily selects from a variety of techniques, including

Comparison and confirmation

According to professional standards, analytical procedures are least likely to be applied to

Compile financial statemtents.

Which of the following factors would most likely cause an auditor not to accept a new audit engagement

Concluding that the entities management probably lacks integrity

Which of the following procedures is not used in tests of controls over purchases?

Confirm inventory held in public warehouses

Which of the following is an unusual procedure that may be deemed necessary to discover the effect of a related party

Confirm significant information with third parties other than banks or attorneys.

Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should

Consider whether the amount of year end balances is selected for interim testing are reasonably predicted

Which of the following procedures will an auditor most likely perform when evaluating audit evidence at the completion of the audit

Consider whether the results of audit procedures affect the assessment of the identified risks of material misstatement due to fraud.

An auditor's consideration of the risk of material misstatement due to fraud and the results of audit tests indicate a significant risk of fraud. The auditor should

Consider withdrawing from the engagement and communicating he reasons for withdrawal to those charged with governance

Analytical procedures used to form an overall audit conclusion generally include

Considering unusual or unexpected account balances that were not previously identified

An auditor is assessing the appropriateness of management's rationale for selecting a model to measure the fair value of debt securities. If, during the current year, an active trading market for the debt security was introduced, the auditor should validate each of the following criteria, except whether the valuation model is

Consistently applied from prior periods

Certain individuals may have an attitude, characteristic, or set of values that permit them to rationalize fraud. Moreover, individuals may have an incentive or be under pressure to commit fraud, or circumstances may provide an opportunity. The auditor's concern about the risk of material misstatements due to fraud is least likely to be increased if management

Consists of many individuals that make operating and financing decisions.

Ordinarily, the predecessor auditor permits the auditor to review the predecessors audit documentation relating to

Contingencies - Yes Balance sheet accounts - Yes

Which of the following audit risk components may be assessed in non quantitative terms?

Control Risk - Yes Detection risk - Yes Inherent risk - Yes

Which result of an analytical procedure suggests the existence of obsolete merchandise?

Decrease in the inventory turnover ratio

Audit documentation that records the procedures used by the auditor to gather evidence should be

Designed to meet the circumstances of the particular engagement

When planning an audit, an auditor should

Determine materiality for the financial statements as a whole.

Smith Corporation has numerous customers. A customer file is maintained and includes a customer record with a name, an address, a credit limit, and an 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 would be to

Develop a program to compare credit limit with account balances and print out the details of any account with a balance exceeding its credit limit

Which of the following circumstances most likely will cause an auditor to suspect that material misstatements exist in a client's financial statements?

Differences between reconciliations of control accounts and subsidiary records are not investigated

Which action regarding fraud is an activity related to performance of risk assessment procedures?

Discussions among the engagement team members regarding the risks of material misstatement due to fraud

The auditor with 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 from the matter's resolution, the CPA firm's procedures should enable the assistant to

Document the details of the disagreement with the conclusion reached

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

Economic order quantity

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

Efficiently

The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the

Engagement letter

The objective of analytical procedures performed as risk assessment procedures is to

Enhance the auditor's understanding of the client's business

After identifying a significant related party transaction outside the entity's normal course of business, an auditor should

Evaluate the business purpose of the transaction

The objective of tests of details of transactions performed as tests of controls is to

Evaluate whether internal controls operated effectively

As part of the audit of fair value estimates and disclosures, an auditor may need to test the entity's significant assumptions. In these circumstances, the auditor should

Evaluate whether the assumptions individually and as a whole form a reasonable basis for the fair value estimates

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 from the resolution of the matter. The audit documentation would probably be

Expanded to detail the assistant auditor's position and how the difference of opinion was resolved

An auditor that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This trend may indicate that

Fictitious credit sales have been recorded during the year

which of the following tasks can be achieved when using generalized audit software

Filtering data based on the accounts receivable data recording

The in-charge auditor for an audit of an issuer most likely has a supervisory responsibility to explain to the staff assistants

How the results of various auditing procedures performed by the assistants should be evaluated

Disclosure of possible fraud to parties other than the client's senior management and those charged with governance ordinarily is not part of an auditor's responsibility. However, to which of the following outside parties may a duty to disclose possible fraud exist? I. To the SEC when the client reports an auditor change II. To a successor auditor when the successor makes appropriate inquiries III. To a government funding agency from which the client receives financial assistance

I. To the SEC when the client reports an auditor change II. To a successor auditor when the successor makes appropriate inquiries III. To a government funding agency from which the client receives financial assistance

An auditor most likely obtains an understanding of a new client to

Identify areas of audit emphasis

Which of the following is a step in an auditor's decision to reply on internal controls?

Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls.

In the course of the audit of financial statements for the purpose of expressing an opinion, the auditor will normally prepare a schedule of uncorrected misstatements. the primary purpose is served by this schedule is to

Identify the potential financial statement effects of misstatements that were not considered clearly trivial when discovered

Which of the following statements is an auditor most likely to add to the negative form of confirmation of account receivable to encourage timely consideration by the recipient

If you do not report any differences within 15 days, it will be assumed that this statement is correct

Which of the following is an aspect of scheduling and controlling the audit engagement

Include in the audit plan a column for estimated and actual time

Some account balances, such as those for pensions and leases, are the result of complex calculations. The susceptibility to material misstatements in these types of accounts is defined as

Inherent risk

Which of the following steps should an auditor perform first to determine the existence of related parties?

Inquire about the existence of related parties from management

Which of the following procedures would provide the most reliable audit evidence

Inspection of bank statements obtained directly from the clients financial institution

Which of the following is not considered an auditor's specialist?

Internal auditor

Computer technology makes it possible to perform paperless audits. For example, in an audit of computer process customer accounts receivable balances, an auditor might use a personal computer to access the accounts receivable files directly and copy selected customer records into the computer for audit analysis. Which of the following is an advantage of this type of paperless audit of accounts receivable balances

It allows immediate processing of audit data on a spreadsheet working paper

Which of the following represents a limitation on the use of generalized audit software (GAS)

It can only be used on hardware with compatible operating systems

with respect to the auditors planning of a year and audit, which of the following statements is always true

It is an acceptable practice to carry out part of the audit at internim dates

An auditor confirms a representative number of open accounts receivable as of December 31st and investigates respondents exceptions and comments. by this procedure, the auditor would be most likely to learn of which of the following

One of the cashier's has been covering a personal embezzlement by lapping

Observation is considered a reliable audit procedure but one that is limited in the usefulness. However, it is used in a number of different audit situations. which with the following statements is true regarding observation as an audit technique

It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place

An auditor's preliminary analysis of accounts receivable turnover revealed the following rates over these accounting periods. 2013 - 4.3 2012 - 6.2 2011 - 7.3 Which of the following is the most likely cause of the decrease in accounts receivable turnover?

Liberalization of credit policy

before accepting an engagement to audit a new client, an auditor is required to

Make inquiries of the predecessor auditor after obtaining the consent of the prospective client

Which of the following circumstances would an auditor most likely consider a risk factor relating to misstatements arising from fraudulent financial reporting?

Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices

The ultimate purpose of understanding internal control is to contribute to the auditor's evaluation of the risk that

Material misstatements may exist in the financial statements

The audit risk against which the auditor and those who rely on his or her opinion require reasonable protection is a combination of two separate risks at the assertion level. the first risk (consisting of inherent risk and control risk) is that balances, classes of transactions, or disclosures contain material misstatements. The second is that

Material misstatements that occur will not be detected by the audit

Madison Corporation has a few large accounts receivable that total $1,000,000. Nassau Corporation has a great number of small accounts receivable that also total $1,000,000. The importance of a misstatement in any one account is therefore greater for Madison than for Nassau. This is an example of the auditor's concept of

Materiality

Specialized audit software

May be written in a procedure oriented language

Which of the following activities is considered a fraudulent activity?

Misappropriation of assets

In the absence of evidence to the contrary, transactions with related parties should not be assumed to be outside the normal course of business. The auditor should, however, be aware of the possibility that transactions with related parties may have been motivated solely or in large part by extraordinary conditions. Which of the following is not normally a condition motivating a transaction outside the normal course of business?

Mutual benefit to both parties

As the acceptable level of detection risk decreases, an auditor may change the

Nature of substantive procedures from a less effective to a more effective procedure

You have been assigned to audit the maintenance department of an organization. which will the following is likely to produce the least reliable audit evidence

Notes on discussions with mechanics in the maintenance operation

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

Observation and inquiry

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?

Observing an entity's employee prepare the schedule of past due accounts receivable

When performing procedures to identify and assess the risks of material misstatement for accounting estimates, the auditor should

Obtain an understanding of how management developed its estimates

The auditor should perform tests of controls when the auditor's risk assessment includes an expectation

Of the operating effectiveness of internal controls

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 the audit problems that might be encountered.

Results of performing substantive procedures

Ajax, Inc., is an affiliate of the audit client and is audited by another audit firm. Which of the following is most likely to be used by the auditor to obtain assurance that all guarantees by the client of the affiliate's indebtedness have been detected?

Review client minutes and obtain a representation letter

Which of the following procedures will most likely assist an auditor in determining whether management has identified all accounting estimates that could be material to the financial statements?

Review the lawyer's letter for information about litigation

two assertions for which confirmation of accounts receivable balances provides primary evidence are

Rights and obligations and existence

For all audits of financial statements made in accordance with GAAS, the auditor should apply analytical procedures to some extent as

Risk assessment procedures - yes Substantive Procedures - No In the review stage - Yes

Which of the following statements about the auditor's response to assessed risks of material misstatement in a financial statement audit is true?

Risk assessment procedures performed to obtain an understanding of an entity's internal control also may serve as a test of controls.

The negative request form of accounts receivable confirmation may be used when the

Risk of material misstatement is - Low Number of small balances is - Many Consideration by the recipient is - Likely

The appropriateness of evidence available to an auditor is least likely to be affected by the

Sampling method employed by the auditor to obtain a sample of such evidence

Which of the following sis an auditor least likely to perform in planning a financial statement audit?

Selecting a sample of vendors' invoices for comparison with receiving reports

U.S. GAAP ordinarily require material related party transactions to be

Separately disclosed but not accounted for differently from transactions between unrelated parties

Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?

Square footage of selling space

Analytical procedures can be best categorized as

Substantive procedures

Regardless of the assessed risks of material misstatement, an auditor should perform some

Substantive procedures to restrict detection risk for significant transaction classes

Which of the following statements is most accurate regarding sufficient inappropriate documentation

Sufficient and appropriate documentation should include evidence that it has been reviewed

Upon discovering material misstatements in a clients financial statements that the client would not revise, a predecessor auditor withdrew from the engagement. if asked by the auditor about the termination of the engagement, the predecessor should

Suggest that the auditor obtain the clients permission to discuss the reason

A client uses a suspense account for unresolved questions whose financial accounting has not been determined. if a balance remains in the suspense account at year end, the auditor would be most concerned about

Suspense debits that management believes will benefit future operations

When an 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?

Test the operating effectiveness of such controls in the current audit

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?

Tests of controls and tests of details

In using the work of an auditor's external specialist, an agreement should exist between the auditor and the specialist as to the nature of the specialist's work. This agreement most likely should include

The applicability of the same confidentiality requirements to the auditor and the specialist

The two requirements crucial to achieving audit efficiency and effectiveness with the personal computer are selecting

The appropriate audit tasks for personal computer applications and the appropriate software to perform the selected audit

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because

The auditor cannot infer that all non respondents have verified their account information

When a management's specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialist's work is acceptable if

The auditor conducted the same audit tests and procedures as would have been applicable if the client employees took the physical inventory

Which of the following is a true statement about an auditor's responsibility regarding consideration of fraud in a financial statement audit?

The auditor should assess the risks of material misstatement due to fraud

Which of the following is true about related party transactions?

The auditor should consider whether an identified related party transaction outside the normal course of business is appropriately accounted for and disclosed.

Which of the following statements is true about the use of the work of an auditor's specialist

The auditor should obtain an understanding of the methods and assumptions used by the specialist

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?

The auditors judgement

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 nonissuer, this understanding generally include

The auditors responsibility for ensuring that the management and those charged with governance are aware of any significant deficiencies or material weaknesses in control that come to the auditors attention

An auditor searching for related party transactions should obtain an understanding of each subsidiary's relationship to the total entity because

The business structure may be deliberately designed to obscure related party transactions.

which of the following statements about evidence is true

The clients accounting records cannot be considered sufficient appropriate audit evidence on which to base the auditors opinion

Confirmation of accounts receivable is a generally accepted auditing procedure. The presumption that the auditor will request confirmation of accounts receivable. the confirmation is necessary when

The combined assessed level of inherent in control risk is high

The client has equity securities classified as available for sale. The auditor is most concerned about controls related to

The determination of fair value measurements of the securities

Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatements arising from fraudulent financial reporting

The entity's industry is experiencing declining customer demand

Which of the following would an auditor most likely use in determining the auditor's preliminary judgement about materiality for the financial statements as a whole?

The entity's year-to-date financial results and position

A client decides not to correct misstatements communicated by the auditor that collectively are not material and wants the auditor to issue the report based on the uncorrected 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

In planning the audit engagement, the auditor should consider each of the following except

The kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed

Auditors may use positive or negative forms of confirmation request. an auditor most likely will use

The negative form for small balances

The concepts of audit risk and materiality are interrelated and must be considered together by the auditor. Which of the following is true?

The phrase in the auditors report "present fairly, in all material respects, in accordance with accounting principles generally accepted by the United States of America" indicates the auditors belief that the financial statements as a whole are not materially misstated.

In performing tests of controls, the auditor will normally find that

The rate of deviations in the sample exceeds the rate of error in the accounting records.

which of the following is a false statement about the relationship of financial statement assertions and audit procedures

The relationship between financial statement assertions and the audit procedures should be one to one

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

The remaining period is long

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?

The report of an auditor's specialist regarding the valuation of a collection of paintings held as an investment provides greater assertion that the auditors physical observation of the paintings

Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be performed?

There is a substantial risk of intentional misapplication of accounting principles

Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement

There will be a client-imposed scope limitation

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

Timing of inventory observation procedures to be performed

In auditor would least likely use computer software to

assess risk

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

auditor judgement

Each of the following might, by itself, form a valid basis for an auditor to decide to omit a procedure except for the

difficulty and cost involved in testing a particular item

During the consideration of fraud in a financial statement audit, the auditor should identify and assess risks that may result in material misstatements due to fraud. This assessment

is based on evaluating whether the entity's related controls have been suitably designed and implemented

Got it working paper that reflects major components of an audit reported in the financial statements is the

lead schedule

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

misposting of recorded transactions

Most of the auditors work in forming an opinion on financial statements consist of

obtaining and evaluating audit evidence