A2 Course 5&7

When there is a group audit, the group engagement team should make a preliminary assessment of materiality. Which of the following is not an accurate statement of the engagement team's responsibilities when assessing materiality? a. determine component materiality for those components on which the roup engagement team will perform and audit b. ascertain materiality levels for specific classes of transactions, balances or disclosures for group financial statements for which misstatements of lesser amounts than the group financial statements takes as a whole could influence user's economic decisions c. Assess materiality for the group financial statement as a whole, without an assessment of performance materiality. d. develop a threshold at which anything above would not be considered trivial to the group financial statements

Assess materiality for the group financial statement as a whole, without an assessment of performance materiality.

Joe Smith has been promoted to audit supervisor prior to an upcoming audit of a large existing client. Assuming that Smith is assigned five assistants for the client audit, his supervisory duties may include all of the following, except for: a. staying informed with his assistants regarding audit issues or difficulties encountered with the client b. communicating to his assistants the susceptibility of the client's financial statements to material misstatements due to error or fraud c. assuming primary responsibility for all phases of the client audit d. reviewing the work performed by his assistants to determine adequacy and whether the audit objectives were met

Assuming primary responsibility for all phases of the client audit

Which of the following procedures would a CPA most likely perform during the planning stage of the audit? A.Evaluate the reasonableness of the management allowance for doubtful accounts B. Determine areas where there is a higher risk of material misstatements C. Evaluate the significance of uncorrected misstatements D. Confirm a sample of accounts receivable

B. Determine areas where there is a higher risk of material misstatements

An auditor determined materiality for planning purposes before year-end based on a nonissuer entity's prior-year financial statements. During the audit, the auditor learns that the actual financial results are significantly different from those of the prior year because of a merger. The auditor's most appropriate response would be to: A. Reassess the risk of material misstatement to determine whether detection risk remains appropriate B. Revise materiality for the financial statements as a whole C. Reperform audit procedures completed before year-end D. Reevaluate the sufficiency of audit procedures performed in the prior-year audit

B. Revise materiality for the financial statements as a whole

Which of the following procedures would a CPA most likely include in planning a financial statement audit? A. Determine the extent of involvement of the Client's internal auditors B. Ask the client's lawyer if contingencies have been recorded in conformity with GAAP C. Obtain written representation letter from the client's management D. Scan the client's journals to identify any unusual transactions

A. Determine the extent of involvement of the Client's internal auditors

In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods: A. Influence the designs of controls B. Affect the auditor's preliminary judgment about materiality levels C. Assist in evaluating the planned audit objectives D. Determine the auditor's acceptable level of audit risk

A. Influence the designs of controls

Based on new information gained during an audit of a nonissuer, an auditor determines that it is necessary to modify materiality for the financial statements as a whole. In this circumstance, which of the following statements is accurate? a. The auditor is required to reperform audit procedures already completed on the audit using the revised materiality. b. The auditor should consider disclaiming an opinion due to a scope limitation. c. The revision of materiality at the financial statement levels will not affect the planned nature and timing of audit procedures, only the extent of those procedures. d. Materiality levels for particular classes of transactions, account balances, or disclosures might also need to be revised.

d. Materiality levels for particular classes of transactions, account balances, or disclosures might also need to be revised.

The senior auditor most likely would have a supervisory responsibility to explain to the staff: a. that fraud is not reported to those charged with governance b. how the results of various auditing procedures performed by the assistants should be evaluated c. what benefits may be attained by the assistants' adherence to established time budgets d. why certain documents are being transferred from the current file to the permanent file

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

Which of the following is a false statement regarding the drafting or use of an audit plan? a. the audit plan specified audit procedures necessary to accomplish audit objectives b. it served as a work plan for audit supervisor and assistants on an audit engagement c. an audit plan is required for new and existing client audit engagements d. the initial audit plan is rarely modified

the initial audit plan is rarely modified

Which of the following is least likely to affect an auditor;s judgements about materiality? A. The nature of an item, such as an illegal but very small payment B. The client's evaluation of materiality C. The dollar amount of key figures in the previous years' financial statements D. Consideration of what a reasonable person would think

B. The client's evaluation of materiality

Which of the following procedures would an auditor least likely perform in planning a financial statement audit? A. Coordinating the assistance of entity personnel in data preparation B. Discussing matter that may affect the audit with firm personnel responsible for non-audit services to the entity C. Selecting a sample of vendors' invoices for comparison to receiving reports D. Reading the current year's interim financial statements

C. Selecting a sample of vendors' invoices for comparison to receiving reports

The engagement partner is in the process of creating an audit plan, which includes outlining which audit procedures to be performed in the current audit. In order to detect material misstatements, the auditor would use which of the following audit procedures? A. Tests of controls B. Other GAAS-related audit procedures C. Substantive procedures D. Risk assessment procedures

C. Substantive procedures

Proper supervision of assistants is requires for all of the following reasons except: A. To ensure that the work performed by assistants is adequate to accomplish the objectives of the engagement B. To ensure that the work performed by assistants is constant with the conclusions presented in the report C. To ensure that the work performed by assistants provides the professional development they will need to advance within the firm D. To stay informed regarding significant accounting and auditing questions, new developments, and material problems

C. To ensure that the work performed by assistants provides the professional development they will need to advance within the firm

An auditor plans to apply substantive tests to the details of asset and liability accounts as of an interim date rather than as of the balance sheet date. The auditor should be aware that this practice: a. eliminated the use of certain statistical sampling methods that would otherwise be available b. presumes that the auditor will reperform the tests as of the balance sheet date c. should be especially considered when there are rapidly changing economic conditioned d. potentially increases the risk that errors that exist at the balance sheet date will not be detected

Potentially increases the risk that errors that exist at the balance sheet date will NOT be detected

Which of the following statements is correct regarding to the consideration of materiality when an auditor is planning and performing a financial statement audit in prior periods A. When determining a tolerable misstatement threshold, an auditor should the into account the amount of misstatements that were accumulated in prior periods B. An auditor should determine a tolerable misstatement threshold at the overall financial statement level , but not at the account or disclosure level C. An auditor Does not need to express materiality as a specified, quantitative amount D. When the reevaluation of materiality results in a significantly lower amount than initially established, an auditor would generally not modify audit procedures

A. When determining a tolerable misstatement threshold, an auditor should the into account the amount of misstatements that were accumulated in prior periods

Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality? a. The anticipated sample size of the planned substantive tests. b. The entity's annualized interim financial statements. c. The results of the internal control questionnaire. d. The contents of the management representation letter.

b. The entity's annualized interim financial statements.

In planning the audit, the auditor obtains a sufficient understanding of the existing system of internal control. Which one of the following is not among the auditor's primary objectives for obtaining such knowledge? a. Identify types of material misstatements. b. Consider the factors that affect the risk of material misstatement. c. Make constructive suggestions to the client for improvement. d. Design effective substantive tests.

c. Make constructive suggestions to the client for improvement.

A retailing entity uses the Internet to execute and record its purchase transactions. The entity's auditor recognizes that the documentation of details of transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would: a. Compare a sample of paid vendors' invoices to the receiving records at year-end. b. Plan for a large measure of tolerable misstatement in substantive tests. c. Perform tests several times during the year, rather than only at year-end. d. Increase the sample of transactions to be selected for cutoff tests.

c. Perform tests several times during the year, rather than only at year-end.

Under PCAOB standards, which one of the following factors would indicate that a company have less complex operations? a. multiple business lines b. a centralized accounting function c. lack of involvement by senior management in day-to-day operations d. several levels of management

centralized accounting function

75. Before applying principle substantive tests to an entity's accounts receivable at an interim date, an auditor should: A. Consider the likelihood of assessing the risk of incorrect rejection too low B. Project sampling risk at the maximum for tests covering the remaining period C. Ascertain that accounts receivable are immaterial to the financial statements D. Asses the difficulty in controlling the incremental audit risk

D. Asses the difficulty in controlling the incremental audit risk

In designing written audit programs, an auditor should establish specific audit objectives that are based on: a. Financial statement assertions. b. Specific audit procedures. c, The timing of audit procedures. d. The planning of the audit.

a. Financial statement assertions.

Which of the following statements is not correct about materiality? a. The concept of materiality recognizes that some matters are important for fait presentation of financial statements in conformity with GAAP, while other matters are not important. b. An auditor considers materiality for the financial statements as a whole in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements. c. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. d. An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements.

b. An auditor considers materiality for the financial statements as a whole in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.

A retail entity uses electronic data interchange (EDI) in executing and recording most of its purchase transactions. The entity's auditor recognizes that the documentation of the transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would: a. Increase the sample of EDI transactions to be selected for cutoff tests. b. Perform tests several times during the year, rather than only at year-end. c. Plan to make a 100% count of the entity's inventory at or near the year-end. d. Decrease the assessed level of control risk for the existence or occurrence assertions.

b. Perform tests several times during the year, rather than only at year-end.

Jacob, an auditor for Green CPAs, is auditing XYZ Co. Green CPAs uses an average method for calculating materiality, in which equal weight is given to each of the following materiality calculations: 5% of pretax income; .5% of total assets; 2% of equity; and 1% of revenue. Select financial information from XYZ;s financial statements is provided below: Revenue - $505,000 Pretax Income - $150,000 Assets - $350,000 Liabilities - $75,000 Based on the facts above, what is the overall materiality that Jacob should use for XYZ Co.?

$4,950 505x.01 = 5050 150x.05 = 7500 350x.005 = 1750 275x.02 = 5500 Total = 19800 / 4 = 4950

As part of developing an audit strategy for an existing client, the auditor may determine a materiality level for all the following, with the exception of: 1. certain classes of transactions 2. financial statements as a whole 3. transaction cycles with misstatements in the prior year's audit 4. performance materiality

3. transaction cycles with misstatements in the prior year's audit

The audit plan usually cannot be finalized until the: A. Consideration of the entity's system of internal control has been completed B. Representation letter has been signed by the client C. Significant deficiencies in internal control have been communicated to those charged with governance D. Search for unrecorded liabilities has been performed and documented

A. Consideration of the entity's system of internal control has been completed

Which of the following procedures would an auditor most likely perform in the planning stage of an audit? A. Make a preliminary judgment about materiality B. Confirm a sample of the entity's accounts payable with known creditors C. Obtain written representations from management that there are NO unrecorded transactions D. Communicate management's initial selection of accounting policies to the audit committee

A. Make a preliminary judgment about materiality

50. Jamie, From MSM CPA firm, is auditing RC Airplanes for Year 3. Jamie expects the users of the financial statements to have a medium to high level of tolerance for misstatements and to be most interested in earnings. MSM CPA Firm has the following audit guidance for calculating materiality: (CALCUALTION DIAGAM HERE) *Benchmark selected should be the one that is most relevant to users of the financial statements Jamie has obtained the following information from RC Airplanes' Year 3 financial statements: Revenue $1,750,000 Total Assets $850,000 Profit before tax $250,000 Based on the facts above, what is the overall materiality that Jamie should use for RC Airplanes? A. $12,750 B. $15,000 C. $17,500 D. $32,500

B. $15,000

Tracy, senior accountant at JFM CPA Firm, is determining the performance materiality for her client in Year 2. Tracy expects that there will be a high likelihood of uncorrected and undetected misstatements. JFM CPA Firm's materiality guidelines advise the auditor to set performance materiality in the range of 50 percent to 70 percent of overall materiality based on the likelihood of misstatement. Tracy has calculated overall materiality at $140,000. Tracy will most likely set performance materiality closest to : A. $98,000 B. $70,000 C. $140,000 D. $ 168,000

B. $70,000

Which of the following is required documentation in an audit in accordance with generally accepted auditing standards? A. A flowchart or narrative of the information system relevant to financial reporting describing the recording and classification of transaction for financial reporting B. An audit plan setting forth in detail the procedures necessary to accomplish the engagement's objectives C. A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of entity personnel D. An internal control questionnaire identifying controls that assure specific objectives will be achieved

B. An audit plan setting forth in detail the procedures necessary to accomplish the engagement's objectives

Which of the following is not a type of financial statement assertion? A. Rights and obligations B. Fairness and accuracy C. Valuation and allocation D. Understandability of presentation and classification

B. Fairness and accuracy

Holding other planning considerations equal, a decrease in the amount of misstatements in a class of transactions that an auditor could tolerate most likely would cause the auditor to: A. Apply the planned substantive tests prior to the balance sheet date B. Perform the planned auditing procedures closer to the balance sheet date C. Increase the assessed level of control risk for relevant financial statement assertions D. Decrease the extent of auditing procedures to be applied to the class of transactions

B. Perform the planned auditing procedures closer to the balance sheet date

To obtain an understanding of a continuing clients business in planning an audit, an auditor most likely would: A. Perform tests of details of transaction and balances B. Review prior-year audit documentation and the permanent file for the client C. Read specilized industries journals D. Reevaluate the clients control environment

B. Review prior-year audit documentation and the permanent file for the client

According to PCAOB standards, when would a company be least likely to reevaluate established materiality levels or tolerable misstatements? A. There is a substantial liklihood that miststatements of amounts less than the materiality level established for the financial statements as a whole would influence the judgement of a reasonable investor B. The client has stated that it will not be able to respond to the auditors request for evidence within the prescribed timeframe C. Materiality levels and tolerable misstatement were originally based on estimated or preliminary financial statement amounts that differ significantly from the actual amounts D. Changes that occurred after the materiality levels were originally set are likely to afffectr investors perceptions about the companies financial statements

B. The client has stated that it will not be able to respond to the auditors request for evidence within the prescribed timeframe

Which one of the below factors is not included in the PCAOB auditing standards as one that should influence the nature and extent of necessary planning activities? A. The size and complexity of the client company B. The size of the auditing firm and the number of auditors assigned to the audit C. the auditor's previous experience with the company D. Changes in circumstances that occur during audit

B. The size of the auditing firm and the number of auditors assigned to the audit

In planning the audit, the auditor should consider materiality for the financial statements as a whole in terms of: A. The smallest aggregate level of misstatement that could be considered material to the financial statements taken as a whole B. The smallest aggregate level of misstatement that could be considered material to any one of the financial statements C. The largest aggregate level of misstatement that could be considered material to the financial statements taken as a whole D. The largest aggregate level of misstatement that could be considered material to any one of the financial statements

B. The smallest aggregate level of misstatement that could be considered material to any one of the financial statements

An auditor is required to obtain an understanding of the entity's business, including business cycles and reason for business fluctuations. What is the audit purpose most directly served by obtaining this understanding? A. To enable the auditor to accurately identify significant deficiencies B. To assist the auditor to accurately interpret information obtained during an audit C. To allow the auditor to more accurately perform tests of controls D. To decide whether it will be necessary to perform analytical procedures

B. To assist the auditor to accurately interpret information obtained during an audit

Financial statement assertions include: A. Completeness, existence; occurrence; and risk assessment B. Valuation, allocation, and accuracy; Completeness; and understandability of presentation and classification C. Information and communication; right and obligations; existence; and occurrence D. Understandability of presentation and classification; independence, integrity, and objectivity; and rights and obligations

B. Valuation, allocation, and accuracy; Completeness; and understandability of presentation and classification

Which of the following factors would a CPA ordinarily consider in the planning stage of an audit engagement? 1. Financial statement accounts likely to contain a misstatement. 2. Conditions that require extension of audit test.

Both 1 and 2

Jacob, senior accountant at NEP CPA firm, is auditing the Year 2 financial statements for Top Firmware Corp., a nonissuer, and he is currently in planning stage. Top Firmware Corp. sales historically occur evenly throughout the year. Jacob expects a low likelihood of uncorrected and undetected misstatements. NEP CPA Firm's materiality guidelines are as follows: Overall financial statement materiality should be based on either total assets or gross annualized revenue, whichever is larger, and should be calculated by taking the appropriate benchmark and multiplying it by either 1.5 percent if the benchmark is assets, or 1 percent if the benchmark is gross revenue. Performance materiality is calculated by multiplying the overall materiality by wither 80 percent (for low likelihood or uncorrected and undetected misstatements) or 60. Percent (for high likelihood of uncorrect and undetected misstatements) Selected in

C. $42,000

In order to reduce the risk that the aggregate of undetectable misstatements in the group financial statements of a nonissue exceeds the materiality for the group financial statements as a whole, an auditor should establish a: A. Materiality for the group financial statements that is lower than the component materiality. B. Materiality for the group financial statement that exceeds prior-year materiality for the group financial statements C. Component materiality that is lower than materiality for the group financial statements D. Component materiality that is equal to the materiality of the group financial statements

C. Component materiality that is lower than materiality for the group financial statements

During the initial planning phase of an audit, the auditor mist likely would: A. Identify specific internal control activities that are likely to prevent fraud B. Evaluate the reasonableness of the client's accounting estimates C. Discuss the timing of the audit procedures with the client's management D. Inquire of the client's attorney as to whether any unrecorded claims are probable of assertion

C. Discuss the timing of the audit procedures with the client's management

In addition to the descriptions of the nature, timing, and extent of planned risk assessment procedures and planned further audit procedures, which of the following additional pieces of information should be documented in the audit plan? A. Procedures performed to asses independence and the ability to perform the engagement B. The understanding of the terms of the engagement, including scope, fees, and resource allocation C. Other audit procedures to be performed to comply with the generally accepted accounting standards D.Issues with management integrity that could affect the decision to continue the audit engagement

C. Other audit procedures to be performed to comply with the generally accepted accounting standards

An auditor should design the written audit plan so that: A. All material transactions will be selected for substantive testing B. Substantive tests prior to the balance sheet date will be minimized C. The Audit procedures selected will achieve specific audit objectives D. Each account balance will be tested under either tests of controls or tests of transactions

C. The Audit procedures selected will achieve specific audit objectives

Before applying substantive tests to the details of the assets account at an interim date, an auditor should assess: A. Control risk ay a low level B. Inherent risk at a high level C. The difficulty in controlling the incremental audit risk D. Materiality for the accounts tested as insignificant

C. The difficulty in controlling the incremental audit risk

Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality A. The results of the initial assessment of control risk B. The anticipated sample size for planned substantive tests C. The entity's financial statements of the prior year D. The assertions that are embodied in the financial statements

C. The entity's financial statements of the prior year

Which of the following factors would generally not be taken into account when determining the extent of supervision needed for the staff? A. The knowledge, skill, and ability of each engagement team member B. The risk of material misstatement in the audit C. The fee to be paid by the client D. The size and complexity of the company

C. The fee to be paid by the client

. During the end of a client audit, one member of the audit engagement team does not agree with the conclusion reached by the remaining audit team members on a key client accounting issue. Under this scenario, the dissenting auditor may take any of the following actions expect for: A. Requesting that his or her dissenting opinion be documented B. Consulting with engagement partner on the matter C. Disassociating from the audit conclusion in the event there is not an adequate resolution to the dispute D. Accepting the engagement team's conclusion despite reservation after orally discussing the concern with the audit supervisor

D. Accepting the engagement team's conclusion despite reservation after orally discussing the concern with the audit supervisor

Which of the following decisions would a CPA likely make during the planning stage of the Audit? 1. Whether to perform tests at an interim date or wait until the start of the audit 2. Whether to rely on the work of internal auditors A. 1 only B. 2 only C. Neither 1 nor 2 D. Both 1 and 2

D. Both 1 and 2

Which on of the below statements best describes the concept of materiality? A. Information that is not likely to influence the decisions of a reasonable investor B. Information that meets strict quantitative thresholds C. Information that directly impacts the income statement D. Information that is likely to be viewed by a reasonable investor as altering the mix of available information

D. Information that is likely to be viewed by a reasonable investor as altering the mix of available information

Which of the following accounts would an auditor most likely test prior to the balance sheet date? A. Interest receivable B. Accrued liabilities C. Short-term debt D. Maintenance and repairs expense

D. Maintenance and repairs expense

Which of the following would not be a primary function of an audit strategy? A. Provide a premilitary assessment of materiality and tolerable misstatement B. Outline reporting objective C. Provide the scope of the audit D. Outline the nature, extent, and timing of audit procedures

D. Outline the nature, extent, and timing of audit procedures

If new information becomes available that could require a reevaluation of the quantitative level of materiality applied during an audit of an issuer, then the auditor should: A. Not change the materiality level once it has been established B. Lower the materiality level, but not raise it C. Raise the materiality level, but not lower it D. Raise or lower the materiality level as appropriate to the situation

D. Raise or lower the materiality level as appropriate to the situation

When determining the nature, extent, and timing of supervision for an audit, the audit supervisor may consider all of the following, except which factor? A. The nature of the audit work assigned to an assistant B. Assessed risk of material misstatements pertaining to the current audit C. Size of complexity of the client D. The assistant's familiarity with the client's industry

D. The assistant's familiarity with the client's industry

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: a. refer the disagreement to the AICPA's Quality Review Committee b. Document the details of the disagreement with the conclusion reached c. discuss the disagreement with the entity's management or its audit committee d. report the disagreement to an impartial peer review monitoring team

Document the details of the disagreement with the conclusion reached

John and Mary are developing an audit plan to outline the nature, extent and timing of the procedures they will be performing during their audit of ABC Co. Which of these procedures would most likely be documented during the planning stage? a. documenting the nature, timing and extent of risk assessment procedures b. analyzing external confirmation responses to determine the need for further investigation c. documenting the results from substantive procedures d. documenting management representation letter

Documenting the nature, timing and extent of risk assessment procedures

Which of the following procedures would a CPA least likely perform during the planning stage of the audit? a. determine the timing of testing b. take a tour of the client's facilities c. perform inquires of outside legal counsel regarding pending litigation d. determine the effect of information technology on the audit

Perform inquiries of outside legal counsel regarding pending litigation

Which of the following activities would a CPA least likely perform during the planning stage of the audit? a. determine the extent to which specialist will be used during the audit b. perform tests of controls to determine whether they are operating as designed c. determine the effect that the use of information technology will have on the audit d. communicate with those charged with governance

Perform tests of controls to determine whether they are operating as designed.

In establishing the overall audit strategy for an audit of a nonissuer, an auditor should: a. assess the risk of material misstatement and develop substantive procedures to mitigate the risk b. form a conclusion on compliance with independence requirements that apply to the audit engagement c. perform an internal control walk-through of the nonissuer to determine the type of audit procedures required d. plan the timing of the audit and the nature of the communications required based on the engagement's reporting objectives

Plan the timing of the audit and the nature of the communications required based on the engagement's reporting objectives.

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the: a. auditor's system of quality control has been maintained at a high level b. results are consistent with the conclusions to be presented in the auditor's report c. audit procedures performed are approved in the professional standards d. audit has been performed by persons having adequate technical training and proficiency as auditors

Results are consistent with the conclusions to be presented in the auditor's report

The audit engagement team is in the process of planning the upcoming audit for a new client. As part of the planning phase, the auditors would perform all of the following activities with the exception of: a. develop an audit strategy b. performing risk assessment procedures c. sampling a small number of client transactions for planned audit procedures d. obtaining knowledge of the client's business and industry

Sampling a small number of client transactions for planned audit procedures.

In an audit of a nonissuer, the auditor plans to recalculate the nonissuer's year-end and employee vacation accrual using a management-provided list of employees' salaries and banked vacation hours. In order to validate the completeness of the employees' information, the auditor would most appropriately: a. Use the payroll system to validate a sample of employee salaries. b. Agree the number of employees included in the vacation-accrual calculation to the final payroll register. c. Review a list of employees who were terminated after year-end to verify that they have been removed from the vacation-accrual calculation. d. Verify that the number of vacation hours accrued by each employee for each pay period complies with the corresponding policy from the human resources department.

b. Agree the number of employees included in the vacation-accrual calculation to the final payroll register.

In order to gain knowledge of a new client's business during the audit planning phase, the auditor may engage in several information gathering activities. Which of the following is not one of those activities? a. Reviewing the minutes of the stockhodler and Board of Directors' meetings. b. Taking a tour of the client's facilities. c. Performing inquiries with outside legal counsel to gain understanding of existing lawsuits. d. Reviewing the client's policies and procedures manual to gather information on the client's accounting processes.

c. Performing inquiries with outside legal counsel to gain understanding of existing lawsuits.

Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit? a. Obtaining a written representation letter from the client's management. b. Examining documents to detect any noncompliance with laws and regulations having a material effect on the financial statements. c. Considering whether the client's accounting estimates are reasonable in the circumstances. d. Determining the extent of involvement of the client's internal auditors.

d. Determining the extent of involvement of the client's internal auditors.

Which of the following statements is correct concerning materiality in a financial statement audit? a. Analytical procedures performed during an audit's review stage usually decrease materiality levels. b. If the materiality amount used in evaluating audit findings increases from the amount used in planning, the auditor should apply additional substantive tests. c. The auditor's materiality judgments generally involve quantitative, but not qualitative, considerations. d. Materiality levels are generally considered in terms of the smallest aggregate level of misstatement that could be considered material to any one of the financial statements.

d. Materiality levels are generally considered in terms of the smallest aggregate level of misstatement that could be considered material to any one of the financial statements.

In developing an overall audit strategy, an auditor should consider: a. Whether the allowance for sampling risk exceeds the achieved upper precision limit. b. Findings from substantive tests performed at interim dates. c. Whether the inquiry of the client's attorney identifies any litigation, claims, or assessments not disclosed in the financial statements. d. Preliminary evaluations of materiality, audit risk, and controls.

d. Preliminary evaluations of materiality, audit risk, and controls.

An auditor reviews a client's accounting policies and procedures when considering which of the following planning matters? a. Method of sampling to be used. b. Preliminary judgments about materiality levels. c. Nature of reports to be rendered. d. Understanding the client's operations and business.

d. Understanding the client's operations and business.

In designing a written audit plan, an auditor should establish specific audit objective that relate primarily to the: a. timing of audit procedures b. cost-benefit of gathering evidence c. selected audit techniques d. financial statement assertions

financial statement assertions

According PCAOB standards, the nature and extent of required planning activities for an issuer audit are influenced by all of the follow factors, except for: a. the audit firm's previous experience with the client b. the number of auditors that will assist in the client audit engagement c. the size and complexity of the client d. the changes in circumstances that occur during the audit

The number of auditors that will assist in the client audit engagement

What procedures would an auditor be least likely to do to gain an initial understanding of a client's business or industry? a. review AICPA accounting and auditing guides b. tour client facilities c. ask questions of client personnel d. vouch accounting records for recurring transactions recorded just after the balance sheet date

Vouch accounting records for recurring transactions recorded just after the balance sheet date.

In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate: a. $10,000 b. $15,000 c. $20,000 d. $30,000

a. $10,000

Katie, senior accountant at Top CPA Firm, is auditing Laminate Floors for the year ended Year 6. Katie expects a high likelihood of uncorrected and undetected misstatements. Based on firm guidelines, Katie should use 1 percent of revenue as the benchmark to calculate overall materiality. Firm guidelines require performance materiality to be calculated by multiplying the overall materiality by either 80 percent (for low likelihood of uncorrected and undetected misstatements) or 60 percent (for high likelihood of uncorrected and undetected misstatements.) Selected financial information from Laminate Floors: Q1: $300,000 / Q2: $400,000 / Q3: $375,000 / Q4: $375,000 / Total: $1,325,000 Based on the information above, determine the appropriate performance materiality that Katie should use. a. $7,950 b. $10,600 c. $13,250 d. $21,200

a. $7,950

While planning the audit strategy for the current audit, the auditor establishes the materiality for the client's financial statements taken as a whole. Which of the following is incorrect regarding the process in which the actually determines the level of materiality for the financial statements taken as a whole? a. No specific dollar amount of materiality threshold is required to be established. b. Both quantitative and qualitative factors are considered. c. Materiality is based on the smallest level of misstatement for any one financial statement. d. The auditor uses his or her professional judgment when assessing materiality.

a. No specific dollar amount of materiality threshold is required to be established.

Which of the following procedures would an auditor most likely include in the planning phase of a financial statement audit? a. Obtain an understanding of the entity's risk assessment process. b. Identify specific control activities designed to prevent fraud. c. Evaluate the reasonableness of the entity's accounting estimates. d. Perform cutoff tests of the entity's sales and purchases.

a. Obtain an understanding of the entity's risk assessment process.

Which type of audit procedures would an auditor use to test a client's financial statement assertions at the account, transaction, or disclosure level? a. Substantive procedures and test of controls. b. Substantive procedures (only). c. Analytical procedures (only). d. Test of controls (only).

a. Substantive procedures and test of controls.