Aud - ME 3 - MC

Pell, CPA, decides to serve as group engagement partner in the audit of the financial statements of Tech Consolidated, Inc. Smith, CPA, audits one of Tech's subsidiaries. In which situation(s) should Pell make reference to Smith's audit under US GAAS? 1: Pell reviews Smith's audit documentation and assumes responsibility for Smith's work, but expresses a qualified opinion on Tech's financial statements 2: Pell is unable to review Smith's audit documentation; however, Pell's inquiries indicate that Smith has an excellent reputation for professional competence and integrity

2 only

An auditor most liekly would apply analytical procedures in the overall review stage of an audit to:

Determine whether additional audit evidence may be needed

Which of the following audit procedures, if used, should be combined with other audit procedures when testing the operating effectiveness of controls? Inspection Inquiry Reperformance Observaation

Inquiry

Does inclusion of zero and negative balances generally require special design considerations with classical variables sampling?

No

Is audit evidence gathered when the auditor is determining the sample size?

No

When an engagement is changed, appropriately, from an audit to a review, would the review report refer to the original engagement, any procedures performed as part of the engagement, or any scope limitation?

No

If the business environment is experiencing a recession, would the auditor focus increased attention on purchase returns and allowances?

No, a recession would not likely affect purchase returns and allowances

Would a loss of inventories (that were purchased in year one) as a result of a flood in year two require adjustment to the financial statements?

No, but may require significant additional disclosure

Would a separate payroll bank account, maintained on an imprest basis, cause an auditor to suspect an employee payroll fraud scheme?

No, it is a standard practice

Would management philosophy and operating style most likely have a significant influence on an entity's control environment when the internal auditor reports directly to management?

No, that would affect the monitoring function but not likely the control environment

Louise, CPA, is a registered accounting firm that is conducting the audit of Violin Industries, an issuer. What is a service Louise may provide?

Tax services

Can an auditor reasonably issue an "except for" qualified opinion for a scope limitation?

Yes

Can an auditor reasonably issue an "except for" qualified opinion for an unjustified accounting change?

Yes

Does inclusion of zero and negative balances generally require special design considerations with PPS?

Yes

Would audit tests detecting material fraud that were known to management, but not disclosed to the auditor likely cause an auditor to question the integrity of management?

Yes

Would management philosophy and operating style most likely have a significant influence on an entity's control environment when management is dominated by one individual?

Yes

Would performing a trend analysis of quarterly sales help an auditor to identify unusual sales transactions?

Yes

A CPA purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. THe trust securities are not material to the CPA's wealth but are material to the child's personal net worth. According to the AICPA COde of Professional Conduct, would this action impair the CPA's independence with the client?

Yes, because the stock would be a direct financial interest (with or without materiality)

If the business environment is experiencing a recession, would the auditor focus increased attention on allowance for doubtful accounts?

Yes, it is more likely that customer will default on payments

In an audit of a nonissuer's financial statements, projected misstatement is:

an auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample

An auditor examines several items during a client audit. Which of the following documents is considered the most reliable? -electronic copies of recently signed vendor contracts -an executed loan agreement -a fax of a signed client loan guarantee transaction a photocopy of a renewed operating lease agreement

an executed loan agreement

When management does not provide reasonable justification that a change in accounting principle is perferable and it presents comparative financial statements, the auditor should express a qualified opinion:

each year that the financial statements initially reflecting the change are presented

An accountatn has been asked to issue a review report on the balance sheet of a nonissuer but not to report on the other basic financial statements. THe account mat not do so:

if the scope of the inquiry and analytical procedures has been restricted

An auditor usually determines whther dividend income from publically-held investments is reasonable by computing the amounts that should have been received by referring to:

records produced by investment services