Chapter 6 Practice Multiple Choice

A predecessor auditor will ordinarily initiate communication with the successor auditor: Prior to the Successor's Acceptance of the Engagement Subsequent to the Successor's Acceptance of the Engagement A. Yes Yes B. Yes No C. No Yes D. No No Option A Option B Option C Option D

Option D

Which of the following is correct concerning audit plans? a. Plans are required for public company audits, but not for non-public company audits. b. They are often revised throughout the audit. c. It is essential that the audit engagement team perform every audit step. d. They are generally less detailed than are audit engagement letters.

b. They are often revised throughout the audit.

Which of the following should not normally be included in the engagement letter for an audit? a. A description of the responsibilities of client personnel to provide assistance. b. An indication of the amount of the audit fee. c. A description of the limitations of an audit.. d. A listing of the client's branch offices selected for testing.

d. A listing of the client's branch offices selected for testing.

Which of the following topics is not normally included in an engagement letter? a. The auditors' responsibilities with respect to the audit. b. A request that the client sign a copy of the letter. c. Client responsibilities regarding the audit. d. A schedule of individual audit team member billing rates.

d. A schedule of individual audit team member billing rates.

The risk of a material misstatement occurring in an account, assuming an absence of internal control, is referred to as: a. Account risk. b. Control risk. c. Detection risk. d. Inherent risk.

d. Inherent risk.

The auditors are concerned about source documents that reflect valid transactions that have not been recorded in the journals. Which procedure would be most effective? a. (1) Trace from source documents to journals. b. (2) Vouch from journals to source documents. c. Either (1) or (2).

a. (1) Trace from source documents to journals.

To best test existence, an auditor would sample from the: a. General ledger to source documents. b. General ledger to the financial statements. c. Source documents to the general ledger. d. Source documents to journals.

a. General ledger to source documents.

Which of the following is not one of the assertions made by management about an account balance? a. Relevance. b. Existence. c. Valuation. d. Rights and obligations.

a. Relevance.

When a company has changed auditors, according to the Professional Standards: a. The successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about the client before the engagement is accepted; the predecessor has no responsibility to initiate this contact, even when aware of matters bearing on the integrity of management. b. The predecessor must always respond fully to all inquiries made by the successor auditor. c. The successor must discuss with the predecessor matters bearing on the engagement prior to accepting the engagement. d. The successor may choose not to attempt any communication with the predecessor auditor.

a. The successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about the client before the engagement is accepted; the predecessor has no responsibility to initiate this contact, even when aware of matters bearing on the integrity of management.

Tracing of a transaction from source documents to the accounting records is generally an audit procedure that is designed to establish: a. completeness. b. valuation. c. existence. d. rights.

a. completeness.

The portions of the auditors' audit plans relating to internal control are generally organized around the: a. major transaction cycles. b. substantive procedures. c. analytical procedures. d. inherent risk assessment.

a. major transaction cycles.

A successor auditor should attempt communication with a predecessor auditor: a. prior to accepting the engagement. b. after the engagement has been accepted. c. both prior to acceptance of the engagement and after the engagement has been accepted. d. is not required to do so.

a. prior to accepting the engagement.

The auditors are concerned about transactions that have been recorded in the journals (and subsequently in the ledgers) that are not valid—that is, a transaction is recorded, but it did not actually occur (e.g., a fraudulent overstatement of sales). Which procedure would be most effective? a. (1) Trace from source documents to journals. b. (2) Vouch from journals to source documents. c. Either (1) or (2).

b. (2) Vouch from journals to source documents.

Which of the following is the best example of a substantive procedure? a. Examining a sample of cash disbursements to test whether expenses have been properly approved. b. Confirming balances of accounts receivable. c. Comparing signatures on checks to a list of authorized check signers. d. Flowcharting a client's cash receipts system.

b. Confirming balances of accounts receivable.

While assessing the risks of material misstatement, auditors identify risks, relate risk to what could go wrong, consider the magnitude of risks, and: a. Assess the risk of misstatements due to illegal acts. b. Consider the complexity of the transactions involved. c. Consider the likelihood that the risks could result in material misstatements. d. Determine materiality levels.

c. Consider the likelihood that the risks could result in material misstatements.

The primary objective of tests of details of transactions performed as substantive procedures is to: a. Comply with generally accepted auditing standards. b. Attain assurance about the reliability of the accounting system. c. Detect material misstatements in the financial statements. d. Evaluate whether management's policies and procedures are operating effectively.

c. Detect material misstatements in the financial statements.

Which of the following elements underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting? a. Adequate disclosure. b. Quality control. c. Materiality and audit risk. d. Client acceptance.

c. Materiality and audit risk.

Which portion of an audit is least likely to be completed before the balance sheet date? a. Tests of controls. b.Issuance of an engagement letter. c. Substantive procedures. d. Assessment of control risk.

c. Substantive procedures.

The risk that the auditors will conclude, based on substantive procedures, that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as a. Business risk. b. Engagement risk. c. Control risk. d. Detection risk.

d. Detection risk.

Which of the following should the auditors obtain from the predecessor auditors before accepting an audit engagement? a. Analysis of balance sheet accounts. b. Analysis of income statement accounts. c. All matters of continuing accounting significance. d. Facts that might bear on the integrity of management.

d. Facts that might bear on the integrity of management.

Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should not be accepted? a. There are significant related party transactions that management claims occurred in the ordinary course of business. b. Internal control activities requiring the segregation of duties are subject to management override. c. Management continues to employ an inefficient system of information technology to record financial transactions. d. It is unlikely that sufficient evidence is available to support an opinion on the financial statements.

d. It is unlikely that sufficient evidence is available to support an opinion on the financial statements.