ACCT 497 Final Exam

Which of the following procedures is not used by auditors to obtain an understanding of internal controls? - Making inquiries of banks and attorneys - Performing walkthroughs of the accounting system. - Reviewing system flowcharts. - Taking plant and operational tours.

Making inquiries of banks and attorneys

Which of the following might be detected by an auditor's review of the entity's sales cutoff? - Excessive goods returned for credit. - Unrecorded sales discounts. - Lapping of year-end accounts receivable. - Overstated sales for the year.

Overstated sales for the year.

What organization is responsible for setting auditing standards for audits of publicly traded companies in the US? - PCAOB - AICPA - FASB - GASB

PCAOB

Which of the following can revoke the CPA's right to audit publicly traded companies? - PCAOB. - AICPA. - ASB - State Board of Accountancy.

PCAOB.

Which of the following can revoke the CPA's right to audit publicly traded companies? - PCAOB/SEC. - AICPA. - ASB - State Board of Accountancy.

PCAOB/SEC.

Which of the following statements is true as it relates to limited liability partnerships? - Partners are personally liable for the acts of those under their supervision - Only senior partners are liable for the partnership's debts. - Partners have no liability in a limited liability partnership arrangement. - All partners must be AICPA members.

Partners are personally liable for the acts of those under their supervision

An auditor finds that the client's gross profit percentage has declined from 25% in the prior year to 20% in the current year. Which of the following should the auditor do next? - Perform additional audit procedures to determine why the fluctuation occurred. - Require the client to research the reason for the discrepancy. - Require the client to make an adjustment so that gross profit is consistent from year to year. - Consider issuing an audit opinion with a going concern explanatory paragraph.

Perform additional audit procedures to determine why the fluctuation occurred.

In attributes sampling, a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample? - Population size. - Tolerable deviation rate. - Expected population deviation rate.Incorrect - Desired Confidence Interval.

Population size.

An auditor wishes to detect sales overstatements. They should compare: - Postings in the sales journal with supporting documentation. - Supporting documentation with postings in the sales journal. - Postings in the sales journal with the accounts receivable sub ledger - Sales journal totals with the general ledger.

Postings in the sales journal with supporting documentation.

Which of the following types of audit evidence is the least reliable? - Pre-numbered sales invoices prepared by the client. - Bank statements obtained from the client. - Test counts of inventory performed by the auditor. - Correspondence from the client's attorney about litigation.

Pre-numbered sales invoices prepared by the client.

Which of the following represents a potential control weakness with respect to the valuation of accounts receivable? - Salespeople are responsible for evaluating and monitoring the financial condition of prospective and continuing customers. - Trade credit standards are reviewed and approved by the finance committee of the board of directors. - Customers not meeting trade credit standards are shipped merchandise on a cash on delivery (COD) basis only - An authorized signature from the credit department is required for all credit sales orders.

Salespeople are responsible for evaluating and monitoring the financial condition of prospective and continuing customers.

Which of the following does not indicate the need for an explanatory paragraph in an audit opinion? - A change in accounting estimate. - A change in accounting principle. - Substantial doubt about the entity continuing as a going concern. - A change in reporting entity

A change in accounting estimate.

In general, revenue is recognized when: - goods are shipped. - an entity satisfies a performance obligation. - it is recorded in the sales journal. - it is received in cash.

an entity satisfies a performance obligation.

Jones, CPA, believes the industry-wide deviation rate of client billing errors is 3% and has established a tolerable deviation rate of 5%. In the review of client invoices, Jones should use - discovery sampling. - attributes sampling. - stratified sampling. - variables sampling.

attributes sampling

Confirmation is least likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables': - valuation. - classification. - existence. - completeness.

classification

Auditors sometimes use ratios as audit evidence. For example, an unexplained increase in the ratio of gross profit to sales may suggest which of the following possibilities? - Fictitious purchases. - Fictitious sales. - Selling and general expenses erroneously being recorded as merchandise purchases. - Unrecorded sales.

Fictitious sales

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of: - valuation and allocation - completeness - rights and obligations - existence.

valuation and allocation

An auditor has determined a $10 million materiality level for a client's balance sheet and a $3 million materiality level for the client's income statement. As a result, the auditor will consider items in the audit to be material if they individually or collectively could result in a misstatement of - $3 million or more. - $6.5 million or more. - $10 million or more. - $13 million or more.

$3 million or more.

In which of the following cases is the computed upper deviation rate the lowest? - 10 percent sampling risk, sample of 100 items, 2 deviations found. - 10 percent sampling risk, sample of 120 items, 3 deviations found - 5 percent sampling risk, sample of 80 items, 4 deviations found - 5 percent sampling risk, sample of 50 items, 1 deviation found.

10 percent sampling risk, sample of 100 items, 2 deviations found.

An auditor has set the risk of assessing control risk too low at 5%, the tolerable deviation rate at 5%, and expected deviation rate at 1.5%. What is the recommended sample size for this application? - 124 - 159 - 208 - 73

124

For a large population of cash disbursement transactions, Smith, CPA is testing controls by using attribute sampling techniques. Anticipating an expected deviation rate of 3 percent, Smith found from a table that the required sample size is 400 with a tolerable deviation rate of 5 percent and a desired confidence level of 95 percent. If Smith anticipated an expected deviation rate of only 2 percent but wanted to maintain the same tolerable deviation rate and confidence level, the sample size would be closest to - 200 - 400 - 533 - 800

200

An auditor has set the risk of assessing control risk too low at 10%, the tolerable deviation rate at 7%, and expected deviation rate at 0.0%. What is the recommended sample size for this application? - 32 - 44 - 57 - 20

32

For an attributes sampling plan, the tolerable deviation rate is 4.5%, the computed upper deviation rate is 7%, the sample deviation rate is 3%, and the desired confidence level is 95%. What is the allowance for sampling risk included in the computed upper deviation rate? - 1.5%. - 3%. - 4%. - 5%.

4 %

An auditor set the tolerable deviation rate at 10 percent for a statistical sampling application. In which of the following situations would the auditor conclude that internal controls are not functioning properly? - 5 percent sampling risk, sample of 80 items, 4 deviations found - 10 percent sampling risk, sample of 80 items, 4 deviations found. - 10 percent sampling risk, sample of 100 items, 5 deviations found. - 5 percent sampling risk, sample of 50 items, 1 deviation found.

5 percent sampling risk, sample of 80 items, 4 deviations found.

Assume that the risk of assessing control risk too low is 5%, the tolerable deviation rate is 6%, and the auditor finds two errors in a sample of 100 items. What is the computed upper deviation rate? - 6.2 - 5.2 - 10.2 - 2.2

6.2

An auditor has set the risk of assessing control risk too low at 5%, the tolerable deviation rate at 7%, and expected deviation rate at 0.5%. What is the recommended sample size for this application? - 66 - 77 - 88 - 55

66

An auditor performing a test of controls expects zero errors in the population being tested and desires to achieve 5% risk of assessing control risk too low. They determine that the minimum acceptable sample size for this application in 42. What is the tolerable deviation rate for this sampling application? - 7% - 0% - 5% - 10%

7%

Assume the risk of assessing control risk too low is 5% and the tolerable deviation rate is 5%. the auditor selects a sample of 60 items and finds 1 deviation. What is the computed upper deviation rate? - 7.7 - 6.7 - 8.7 - 5.7

7.7

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations? - The positive confirmation form must always be used to confirm all balances regardless of size. - A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances. - A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables. - The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.

A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances.

What is channel stuffing? - A company records revenue before delivery terms can be arranged. - A company records revenue on goods that will be shipped overseas. - A company induces distributors to buy substantially more inventory than they can promptly resell. - A company alters the terms and conditions of recorded sales to entice customers to accept delivery of goods.

A company induces distributors to buy substantially more inventory than they can promptly resell.

What type of opinion should an auditor give when the auditor is not independent? - A disclaimer of opinion. - A standard unmodified opinion. - An unmodified opinion with an explanatory paragraph. - A qualified opinion

A disclaimer of opinion.

In which one of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining a fee? - A fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan - A fee based on an estimate of the number of hours needed to complete the engagement by auditors of various levels of experience. - A fee based on the nature of the service rendered and the CPA's particular expertise instead of the actual time spent on the engagement. - A fee based on the fee charged by the prior auditor.

A fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan

In which one of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining a fee? - A fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan. - A fee based on an estimate of the number of hours needed to complete the engagement by auditors of various levels of experience - A fee based on the nature of the service rendered and the CPA's particular expertise instead of the actual time spent on the engagement. - A fee based on the fee charged by the prior auditor

A fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan.

Which of the following is an indicator of attitudes / rationalizations to engage in fraudulent financial reporting? - A member of management has been accused of illegal acts at another entity that they control. - A member of management has incurred significant gambling debt. - The organization's board of directors is not independent of management. - A number of the company's account balances are based on significant estimates that involve subjective judgments.

A member of management has been accused of illegal acts at another entity that they control.

Which of the following in an indicator of an opportunity to engage in fraudulent financial reporting? - A number of the company's account balances are based on significant estimates that involve subjective judgments. - A member of management has incurred significant gambling debt. - A member of management has been accused of illegal acts at another entity that they control. - Management frequently argues with the auditor regarding the validity of estimates in the financial statements.

A number of the company's account balances are based on significant estimates that involve subjective judgments.

An auditor finds a misstatement that is material but not highly material. Which of the following types of audit opinion should be issued? - A qualified opinion. - An unqualified opinion with an emphasis-of-matter paragraph. - A disclaimer of opinion. - An adverse opinion.

A qualified opinion.

Which of the following best illustrates the concept of sampling risk? - A randomly chosen sample may not be representative of the population as a whole (regarding the characteristic being tested). - An auditor may select audit procedures that are not appropriate to achieve the specific objective. - An auditor may fail to recognize errors in the documents examined for the chosen sample. - The documents related to the chosen sample may not be available for inspection.

A randomly chosen sample may not be representative of the population as a whole (regarding the characteristic being tested).

What are the accounting requirements for a correct sales cutoff? - A shipment should be recorded as a sale when the risks of ownership transfer to the buyer and collectability is reasonably assured - A shipment should be recorded as a sale when the merchandise is shipped - A shipment should be recorded as a sale when the payment for the merchandise has been received by the seller - A shipment should be recorded as a sale when the merchandise is received by the purchaser

A shipment should be recorded as a sale when the risks of ownership transfer to the buyer and collectability is reasonably assured

According to the ethical standards of the profession, which of the following acts is generally prohibited? - Accepting a commission for recommending a product to an audit client - Purchasing a product from a third party and reselling it to a client. - Writing a financial management newsletter promoted and sold by a publishing company. - Accepting engagements obtained through the efforts of third parties

Accepting a commission for recommending a product to an audit client

In testing the existence assertion for an asset, an auditor ordinarily works from the - Accounting records to the supporting documents - Financial statements to the potentially un-recoded items. - Potentially unrecorded items to the financial statements. - Supporting documents to the accounting records.

Accounting records to the supporting documents

Confirmations would normally be most likely used as a type of audit evidence in connection with which of the following? - Accounts Receivable. - Goodwill. - Deferred Taxes. - Machinery and Equipment.

Accounts Receivable.

For a sample of sales transactions selected from the sales journal, verify that the amount of the transaction has been recorded in the correct account in the receivable sub-ledger. This is a Transaction-related assertion? Which assertion the auditor is testing for?

Accuracy

What objectives of controls are of primary interest to an auditor performing a financial statement audit? - Accurate and reliable financial reporting. - Effective and efficient operations. - Compliance with applicable laws and regulations. - Prevention or detection and timely correction of errors and fraud.

Accurate and reliable financial reporting.

For each situation, state the appropriate audit report from the following alternatives: i) Adverse opinion on ICFR ii) Disclaimer of opinion on ICFR iii) Unqualified opinion on ICFR The auditor identified several significant deficiencies in internal control. Because of these significant deficiencies, the auditor believes that there is a reasonable possibility that internal control will not prevent or detect material misstatement on a timely basis: - Adverse Opinion on ICFR - Disclaimer of Opinion on IFCR - Unqualified Opinion on IFCR

Adverse Opinion on ICFR

For each situation, state the appropriate audit report from the following alternatives: i) Adverse opinion on ICFR ii) Disclaimer of opinion on ICFR iii) Unqualified opinion on ICFR The auditor determined that a deficiency in internal control exists that will not prevent or detect a material misstatement in the financial statements - Adverse Opinion on ICFR - Disclaimer of Opinion on ICFR - Unqualified Opinion on ICFR

Adverse Opinion on ICFR

For each situation, state the appropriate audit report from the following alternatives: i) Adverse opinion on ICFR ii) Disclaimer of opinion on ICFR iii) Unqualified opinion on ICFR The auditor identified a material misstatement in the financial statement that was not detected by management of the company: - Adverse Opinion on ICFR - Disclaimer of Opinion on ICFR - Unqualified Opinion on ICFR

Adverse Opinion on ICFR

Which of the following best describes the roles of the American Institute of Certified Public Accountants [AICPA] and the Public Company Accounting Oversight Board [PCAOB] in establishing auditing standards? - All choices - Auditing standards issued by the AICPA and the PCAOB are considered minimum standards of performance for auditors. - The AICPA sets auditing standards for use in audits of nonpublic entities. - The PCAOB sets auditing standards for use in audits of publicly held companies.

All Choices

Which of the following organizations affect the environment that CPAs work in? - All Choices - The American Institute of Certified Public Accountants [AICPA]. - The Securities and Exchange Commission [SEC]. - The Public Company Accounting Oversight Board [PCAOB].

All Choices

In assessing whether to accept a client for an audit engagement, a CPA should consider: - All of these choices are correct. - the current financial health of the prospective client. - the integrity of management. - the CPA's overall engagement risk.

All of these choices are correct.

Which of the following presumptions is correct regarding the reliability of audit evidence? - An effective internal control system provides increased assurance with regard to the reliability of audit evidence. - To be reliable, evidence should be convincing rather than simply persuasive. - Information obtained directly from the company is considered to be the most reliable type of evidence. - Reliability generally refers to the amount and relevance of corroborative audit evidence obtained.

An effective internal control system provides increased assurance with regard to the reliability of audit evidence.

Which of the following relatively small misstatements most likely would have a material effect on an entity's financial statements? - An illegal payment to a foreign official that was not recorded. - A piece of obsolete office equipment that was not retired. - A petty cash fund disbursement that was not properly authorized. - An uncollectible account receivable that was not written-off.

An illegal payment to a foreign official that was not recorded.

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of October 31. By this procedure, the auditor would be most likely to learn about which of the following? - An October invoice was improperly computed. - An October check from a customer was posted in error to the account of another customer with a similar name. - An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period. - An account balance is past due and should be written-off.

An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.

Which of the following most likely would give the most assurance concerning the valuation assertion for accounts receivable? - Tracing amounts in the subsidiary ledger to details on shipping documents. - Comparing receivable turnover ratios to industry statistics for reasonableness. - Inquiring about receivables pledged under loan agreements. - Assessing the allowance for uncollectible accounts for reasonableness.

Assessing the allowance for uncollectible accounts for reasonableness.

Which of the following is true regarding audit evidence? - Audit evidence is gathered to determine whether each relevant financial statement assertion is being supported. - Auditors typically gather audit evidence about one whole financial statement at a time rather than one account at a time. - Auditors rarely gather audit evidence about one business process at a time. - When audit evidence supports management's assertions, a qualified audit report can be issued.

Audit evidence is gathered to determine whether each relevant financial statement assertion is being supported.

Which of the following best describes relationships among auditing, attest, and assurance services? - Auditing is a type of assurance service. - Attest is a type of auditing service. - Auditing and attest services represent two distinctly different types of services. - Assurance is a type of attest service.

Auditing is a type of assurance service.

Proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of: - Authorization, recording, and custody. - Authorization, execution, and payment. - Custody, execution, and reporting - Authorization, payment, and recording.

Authorization, recording, and custody.

Which of the following is the most persuasive type of audit evidence? - Bank statements obtained directly from the bank. - Bank statements obtained from the client. - Pre-numbered client sales invoices. - Vendor's invoices included in the client's files.

Bank statements obtained directly from the bank.

An auditor wishes to tests whether a company's internal controls are operating effectively to prevent the failure to invoice shipments. Which of the following populations should the auditor select transaction items from? - Bill of Lading File - Customer Order File - Accounts Receivable Subsidiary Ledger - Sales Invoice File

Bill of Lading File

To determine whether the internal controls operated effectively to minimize instances of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the - Bill of Lading File - Customer File - Customers' Accounts Receivable Master File - Sales Invoice File

Bill of Lading File

Which of the following is a detection risk factor? - Choosing a sample that is not representative of its population. - An unstable business environment. - Lack of segregation of duties. - An account balance that is based on subjective estimates.

Choosing a sample that is not representative of its population.

Which of the following procedures addresses the completeness assertion? - Compare a sample of shipping documents to related sales invoices. - Compare a sample of payroll transactions to supporting documentation. - Confirm accounts receivable balances with the customers. - Review bank statements for indications of kiting.

Compare a sample of shipping documents to related sales invoices.

Discussions with the owner-manager of an entity under audit reveal to the auditor that the company is more concerned with minimizing its income tax payments than maximizing income. Based on this information, which management assertion will the auditor be most concerned about verifying with regard to sales revenue? - Completeness. - Existence and occurrence. - Rights and obligations. - Valuation and Allocation.

Completeness.

Determine whether all risks related to accounts receivable are adequately disclosed. This is a Presentation and disclosure related assertion? This is a [what]-related assertion? Which assertion the auditor is testing for?

Completness

Which of the following is not addressed during the process of obtaining an understanding of internal controls? - Control operating effectiveness - Control design effectiveness - Control environment effectiveness - Information and communication effectiveness

Control operating effectiveness

An auditor performs the following test of controls: Select a sample of invoices. Obtain copies of invoices, corresponding sales orders, and packing slips. Compare all three documents and make sure that sales quantities and selling prices match. What assertion does this test of controls most closely relate to? - Controls are in place to ensure the accuracy of sales transactions. - Controls are in place to ensure that all sales transactions are recorded. - Controls are in place to ensure that sales transactions are recorded on a timely basis. - Controls are in place to assure all sales transactions actually occurred.

Controls are in place to ensure the accuracy of sales transactions.

Increase TDR will [what] sample size

Decrease

Which of the following combinations results in the greatest decrease in sample size in an attribute sample for a test of controls? - Decrease in desired confidence level, Increase in tolerable deviation rate, and Decrease in expected population deviation rate - Decrease in desired confidence level, Decrease in tolerable deviation rate, and Increase in expected population deviation rate - Increase in desired confidence level, Increase in tolerable deviation rate, and Decrease in expected population deviation rate - Decrease in desired confidence level, Increase in tolerable deviation rate, and Increase in expected population deviation rate.

Decrease in desired confidence level, Increase in tolerable deviation rate, and Decrease in expected population deviation rate

Which of the following factors does an auditor generally need to consider in planning a particular audit sample for a test of controls? - Number of items in the population. - Total dollar amount of the items to be sampled. - Desired confidence level. - Risk of assessing control risk too high.

Desired confidence level.

Evaluating a prospective client requires the following step(s): - Determine if the firm is independent of the client. - Communicate with the SEC. - Test internal controls. - Communicate with the AICPA.

Determine if the firm is independent of the client.

Which of the following statements is correct concerning statistical sampling in tests of controls? - As the population size increases, the sample size should increase proportionately. - Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate. - There is an inverse relationship between the expected population deviation rate and the sample size. - In determining tolerable deviation rate, an auditor considers detection risk and the sample size.

Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate

Which of the following best describes the reason why an independent auditor is often retained to report on financial statements? - Different interests may exist between the entity preparing the statements and the persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements. - Management fraud may exist, and it is more likely to be detected by independent auditors than by internal auditors. - A misstatement of account balances may exist, and all misstatements are generally corrected as a result of the independent auditor's work. - An entity may have a poorly designed internal control system.

Different interests may exist between the entity preparing the statements and the persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements.

For each situation, state the appropriate audit report from the following alternatives: i) Adverse opinion on ICFR ii) Disclaimer of opinion on ICFR iii) Unqualified opinion on ICFR The auditor was unable to obtain any evidence about the operating effectiveness of internal control over financial reporting: - Disclaimer of Opinion on ICFR - Adverse Opinion on ICFR - Unqualified Opinion on ICFR

Disclaimer of Opinion on ICFR

An auditor discovers several immaterial errors that the auditor determines do not, individually or in the aggregate, cause the financial statements to be materially misstated. The auditor proposes adjusting entries to the client, who refuses to correct the errors. Which of the following best summarizes the steps the auditor should take? - Document the errors and the conclusion that the financial statements are free from material misstatement. - Withdraw from the engagement because the client's refusal to correct the errors is a scope limitation. - Issue a qualified, "except for" opinion on the financial statements because the client refuses to correct the errors. - Correct the errors on the client's behalf, and then issue the audit report.

Document the errors and the conclusion that the financial statements are free from material misstatement.

A written understanding between the auditor and the entity concerning the auditor's responsibility for fraud is usually set forth in a(n) - Engagement letter. - Management Letter. - Internal control letter. - Letter of audit inquiry.

Engagement letter.

According to the AICPA, the basic purpose of a financial statement audit is to - Enhance the degree of confidence that users can place in the financial statements - Assure that all fraudulent transactions have been detected. - Examine individual transactions so that the auditor may certify as to their validity. - Assure the consistent application of correct accounting procedures

Enhance the degree of confidence that users can place in the financial statements

Which of the following items would be included in an auditor's permanent file documentation? - Excerpts of the corporate charter and bylaws. - Board of Directors' minutes. - An analysis of which account balances are likely to be materially misstated. - Documentation regarding the assessed level of control risk.

Excerpts of the corporate charter and bylaws.

An auditor may physically inspect new additions listed on the summary of plant and equipment transactions for the year. Which assertion does this address? - Existence - Valuation and Allocation - Completeness - Cutoff

Existence

Send letters to a sample of accounts receivable customers to verify whether they have an outstanding balance at December 31, 2018. This is a Balance-related assertion? Which assertion the auditor is testing for?

Existence

Which of the following primary assertions is satisfied when an auditor observes the entity's physical count of inventory? - Existence. - Valuation and Allocation. - Completeness. - Rights and obligations.

Existence.

Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account? - Expected amount of misstatement and the measure of tolerable misstatement - Expected amount of misstatement but not the measure of tolerable misstatement. - Measure of tolerable misstatement but not the expected amount of misstatement - Neither the expected amount of misstatement nor the measure of tolerable misstatement.

Expected amount of misstatement and the measure of tolerable misstatement

Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account? - Expected amount of misstatement but not the measure of tolerable misstatement. - Expected amount of misstatement and the measure of tolerable misstatement. - Measure of tolerable misstatement but not the expected amount of misstatement. - Neither the expected amount of misstatement nor the measure of tolerable misstatement.

Expected amount of misstatement and the measure of tolerable misstatement.

Which of the following most likely would be the result of ineffective internal control policies and procedures in the revenue process? - Final authorization of credit memos by personnel in the Sales Department could permit an employee defalcation scheme. - Fictitious transactions could be recorded, causing an understatement of revenues and an overstatement of receivables. - Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped. - Omission of shipping documents could go undetected, causing an understatement of inventory.

Final authorization of credit memos by personnel in the Sales Department could permit an employee defalcation scheme.

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality? - Firm policy sets materiality at 4% of pretax income. - Potential for fraud. - The company is close to violating loan covenants. - A small misstatement would interrupt an earnings trend.

Firm policy sets materiality at 4% of pretax income.

Which of the following best defines professional skepticism? - Having an attitude that includes a questioning mind and a critical assessment of evidence - Operating under the assumption that the client's financial statements contain material misstatement. - Assuming that very little of what the client tells the auditor is true. - Collecting evidence that proves client assertions beyond a reasonable doubt.

Having an attitude that includes a questioning mind and a critical assessment of evidence

Which of the following is NOT part of the control environment? - IT application controls. - Management's operating style. - Organizational structure. - Human resource policies and procedures.

IT application controls.

Using non-statistical sampling, which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements? - Set the tolerable deviation rate at a lower level than originally planned. - Identify the large and unusual disbursements as individually significant and test 100 percent. - Increase the sample size to reduce the effect of the unusually large disbursements. - Continue to draw new samples until all the unusually large disbursements appear in the sample.

Identify the large and unusual disbursements as individually significant and test 100 percent.

Increase EPDR will [what] sample size

Increase

Increased in desired confident level will [what] sample size

Increase

Which of the following combinations guarantees a larger sample size? - Decrease the desired confidence level and decrease the tolerable deviation rate. - Increase the desired confidence level and decrease the tolerable deviation rate. - Decrease the desired confidence level and increase the expected deviation rate. - Increase the tolerable deviation rate and increase the expected deviation rate.

Increase the desired confidence level and decrease the tolerable deviation rate.

Which of the following ethical concepts is considered to be the cornerstone of the auditing profession? - Independence. - Confidentiality. - Due professional care. - Protection of rights.

Independence.

The risk to investors that a company's financial statements may be materially misleading is called - Information risk. - Moral hazard. - Business risk. - Investment risk.

Information risk.

Assume that the planned level of acceptable audit risk in each of the following circumstances is 0.05. Under which of the following circumstances would an auditor need to gather the least audit evidence? - Inherent risk = 0.5 Control risk = 0.4 - Inherent risk = 1.0 Control risk = 1.0 - Inherent risk = 0.5 Control risk = 1.0 - Inherent risk = 0.7 Control risk = 0.3

Inherent risk = 0.5 Control risk = 0.4

Audit sampling is not used for which type of audit evidence? - Inquiry - Inspection of tangible assets - Re-performance - Confirmation

Inquiry

Audit sampling is not used for which type of audit evidence? - Inquiry. - Inspection of tangible assets.Incorrect - Re-performance. - Confirmation.

Inquiry

For which of the following audit tests would an auditor most likely use attributes sampling? - Inspecting employee time cards for proper approval by supervisors. - Making an independent estimate of the amount of LIFO inventory - Examining invoices in support of the valuation of fixed asset additions. - Selecting accounts receivable balances for confirmation.

Inspecting employee time cards for proper approval by supervisors.

For which of the following audit tests would an auditor most likely use attributes sampling? - Making an independent estimate of the amount of LIFO inventory. - Examining invoices in support of the valuation of fixed asset additions. - Selecting accounts receivable balances for confirmation. - Inspecting employee time cards for proper approval by supervisors.

Inspecting employee time cards for proper approval by supervisors.

Which of the following procedures would provide the most reliable audit evidence? - Inspection of bank statements obtained directly from the client's financial institution. - Inquiries of the client's internal accounting staff. - Inspection of pre-numbered client purchase orders filed in the accounts payable department. - Observation of procedures performed by the client's personnel to approve cash disbursements.

Inspection of bank statements obtained directly from the client's financial institution.

The concept of materiality as it applies to a financial statement audit - Is determined, in part, based on how financial statement users may be influenced in making decisions. - Relates primarily to the audit fees involved. - Generally involves less professional judgment for public companies. - Relates primarily to the quantity of audit procedures performed.

Is determined, in part, based on how financial statement users may be influenced in making decisions.

A client's customer management system sends an automated email each me a customer master record is modified. The customer has to confirm the change by responding to the e-mail. A member of the billing management team must review the response to confirm that the change was authorized by the customer. Why is this control important? - It ensures that items shipped by the company are delivered to authorized customers. - It ensures that sales are classified in the proper general ledger account. - It ensures that sales cutoff is accurate. - It ensures that the recording of sales transactions is complete.

It ensures that items shipped by the company are delivered to authorized customers.

Which of the following statements about audit documentation is true? - It is the property of the auditor, and client permission is generally required to allow other parties to examine the documentation. - It becomes the property of the client after completion of the audit. - It is the property of the auditor, and client permission is not necessary to allow other parties to examine the documentation. - It is the property of the auditor, and there are no circumstances under which the auditor would be required to show the documentation to other parties.

It is the property of the auditor, and client permission is generally required to allow other parties to examine the documentation.

Which of the following best describes the distinguishing feature of statistical sampling? - It requires the examination of a smaller number of supporting documents. - It permits the auditor to use the most efficient sample size and to quantify the sampling risk to reach a statistical conclusion about the population. - It reduces the problems associated with the auditor's judgment concerning materiality. - It is evaluated in terms of two parameters: statistical mean and random selection.

It permits the auditor to use the most efficient sample size and to quantify the sampling risk to reach a statistical conclusion about the population.

Harvey Jones, CPA, uses statistical sampling to test control procedures. What is a benefit of using statistical sampling? - It provides a means of mathematically measuring the sampling risk that result from examining only a part of the data. - It eliminates the use of judgment required of Jones because the AICPA has established numerical criteria for this type of testing. - It increases Jones' knowledge of the entity's prescribed procedures and their limitations. - It is required by generally accepted auditing standards.

It provides a means of mathematically measuring the sampling risk that result from examining only a part of the data.

Which of the following is true relating to audit work paper documentation? - It serves as the basis of review for audit supervisors to determine if sufficient, appropriate evidence has been gathered. - It should not include copies of any client-generated documents. - It is generally examined and utilized by the client after the audit is completed. - It must be destroyed once the audit is complete and the opinion is rendered.

It serves as the basis of review for audit supervisors to determine if sufficient, appropriate evidence has been gathered.

Joe Fastrack is an audit partner in Deloitte's Los Angeles office. Under which of the following situations is independence impaired? - Joe's dependent daughter holds stock in one of the Los Angeles office's audit clients through her college fund. - Joe's wife has a part-time accounting position with a company that is audited by Deloitte's San Francisco office. - The firm provides both a financial audit report and a cybersecurity risk management attestation report to one of Joe's clients. - Joe holds shares in a mutual fund that is invested in several clients served by the Los Angeles office.

Joe's dependent daughter holds stock in one of the Los Angeles office's audit clients through her college fund.

An independent audit aids in the communication of economic data because the audit - Lends credibility to the financial statements. - Confirms the exact accuracy of management's financial representations. - Guarantees that financial data are fairly presented. - Assures the readers of financial statements that any fraudulent activity has been corrected.

Lends credibility to the financial statements.

Which of the following procedures is performed BEFORE accepting a prospective client? - Making inquiries of third pares regarding management integrity. - Verifying cash balances. - Testing of internal controls. - Verifying the existence of key fixed assets.

Making inquiries of third pares regarding management integrity.

In the context of agency theory, information asymmetry refers to the idea that - Management has more information about the entity's true financial position than do the absentee owners (i.e. stockholders). - Information can vary in its reliability. - Information can vary in its relevance. - Management likely will not act in the best interests of the absentee owners.

Management has more information about the entity's true financial position than do the absentee owners (i.e. stockholders).

Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when: - Management is dominated by one individual. - External policies established by pares outside the entity affect its accounting practices - Internal auditors have direct access to the board of directors and the entity's management - The audit committee is active in overseeing the entity's financial reporting policies.

Management is dominated by one individual.

If a company's external auditor expresses an unmodified opinion as a result of the audit of the company's financial statements, readers of the audit report can assume that: - Material issues about the application of accounting principles were resolved to the satisfaction of the external auditor. - The external auditor found no fraud - The company is financially sound and the financial statements are accurate. - Internal control is effective.

Material issues about the application of accounting principles were resolved to the satisfaction of the external auditor.

An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to: - Measure the sufficiency of the evidential matter obtained. - Eliminate the risk of non-sampling errors - Reduce audit risk and materiality to a relatively low level - Minimize the failure to detect errors and fraud.

Measure the sufficiency of the evidential matter obtained.

Which of the following statements regarding the monitoring component of the COSO internal control framework is NOT correct? - Monitoring should be conducted by the external auditor, not by the company's employees. - Monitoring can be an ongoing process. - Monitoring can be conducted as a separate evaluation. - Monitoring conducted by internal audit staff can reduce the extent of testing performed by the external auditor.

Monitoring should be conducted by the external auditor, not by the company's employees.

Which of the following misstatements is not related to the completeness assertion for revenue? - Goods are shipped, but revenue is not recorded. - This year's revenue is recorded next year. - Next year's revenue is recorded this year. - Revenue is not recognized for services that have been performed.

Next year's revenue is recorded this year.

Which of the following statements is true regarding audit sampling? - Non-statistical audit sampling is commonly used in practice. - When using non-statistical sampling, the sample does not need to be representative of the population - When using non-statistical sampling, sampling risk does not need to be considered. - When using statistical sampling, the sample can be selected haphazardly.

Non-statistical audit sampling is commonly used in practice.

According to the reliability hierarchy by evidence type as presented in the text, an example of audit evidence with a low level of reliability is: - Observation - Re-performance. - Inspection. - Analytical procedures.

Observation

Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached. This is a Transaction-related assertion? Which assertion the auditor is testing for?

Occurence

Which of the following would best be described as an assurance service? - Offering an opinion concerning the accuracy of statements made on a client's web site relating to its online privacy policies - Preparing a report representing a client's position during an IRS audit. - Working with a client to develop a more efficient method of processing financial transactions. - Assisting a client in identifying potential sources of capital for future acquisitions.

Offering an opinion concerning the accuracy of statements made on a client's web site relating to its online privacy policies

Which of the following is not an issue related to the valuation of accounts receivable? - The credit granting function. - A proper allowance for doubtful accounts. - The net realizable value of accounts receivable. - Proper cutoff.

Proper cutoff.

Given the following circumstances regarding an audit, please circle the answer choice that corresponds to the category of audit report that an audit rm should issue: =The audit firm is independent with respect to the client, both in fact and in appearance. =The audit firm is not able to make a definitive determination as to whether or not the entire set of financial statements are in accordance with accounting principles generally accepted in the United States of America, as they were unable to obtain sufficient appropriate evidence regarding the carrying value of a material investment in another company or their share of the net income from that company =Despite the uncertainty associated with the above bulleted material item, overall, the financial statements are still fairly presented in all material respects - Qualified - Unqualified with Emphasis-of-matter, Explanatory Paragraph - Disclaimer - Adverse

Qualified

Audit sampling is commonly used for which type of audit evidence? - Re-performance - Observation - Analytical Procedures - Inquiry

Re-performance

Audit sampling is commonly used for which type of audit evidence? - Re-performance. - Analytical procedures. - Inquiry. - Observation.

Re-performance

According to the reliability hierarchy by evidence type as presented in the text, an example of audit evidence with a high level of reliability is: - Recalculation - Scanning. - Observation. - Confirmation.

Recalculation

Which of the following is not a Principle of Professional Conduct as defined by the Code of Professional Conduct? - Reporting. - Integrity. - Due care. - Scope and nature of services

Reporting.

Which of the following situations requires client consent to disclose confidential information contained in audit documentation? - Request from another CPA rm that is considering making a bid to obtain the audit engagement. - PCAOB inspection proceedings. - Preparing a response to a court subpoena. - Responding to a disciplinary proceeding initiated by the state Board of Accountancy.

Request from another CPA rm that is considering making a bid to obtain the audit engagement.

You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment. Your audit supervisor instructs you to look at documentation to determine which items are held on consignment. Which audit assertion does this address? - Rights and obligations - Existence - Completeness - Valuation and allocation

Rights and obligations

To determine whether the internal controls operated effectively to minimize instances of failure to post invoices to customers' accounts receivable master file, the auditor would select a sample of transactions from the population represented by the: - Sales Invoice File - Customer Order File - Bill of Lading File - Customers' Accounts Receivable Master File

Sales Invoice File

An auditor wishes to detect a possible understatement of sales. The auditor would most likely trace transactions from the: - Shipping documents to sales invoices. - Sales invoices to shipping documents. - Cash receipts journal to the sales journal. - Sales journal to the cash receipts journal.

Shipping documents to sales invoices.

A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? - Smaller amount of tolerable misstatement - Greater reliance on internal controls. - Greater reliance on analytical procedures - Smaller expected frequency of misstatements

Smaller amount of tolerable misstatement

A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? - Greater reliance on internal controls. - Greater reliance on analytical procedures. - Smaller expected frequency of misstatements. - Smaller measure of tolerable misstatements.

Smaller measure of tolerable misstatements.

Given the following conditions, please circle the answer choice below that corresponds to the category of audit report that an audit firm should issue: = The financial statements include a balance sheet, income statement, statement of changes in stockholders' equity, and a statement of cash flows = The auditor has accumulated sufficient appropriate evidence and can conclude that the audit has been performed in accordance with auditing standards = The financial statements and footnotes are presented in accordance with U.S. generally accepted accounting principles = No circumstances have been identified that would cause any addition to or modification of the wording of the report: - Standard Unqualified - Qualified - Unqualified with Emphasis-of-matter Explanatory Paragraph - Disclaimer

Standard Unqualified

Which of the following can revoke the CPA's license to practice? - State Board of Accountancy - AICPA. - SEC. - PCAOB.

State Board of Accountancy

Which of the following can revoke the CPA's license to practice? - State Board of Accountancy. - AICPA. - SEC. - PCAOB.

State Board of Accountancy.

In general, revenue is recognized when: - an entity satisfies a performance obligation - good are shipped - it is recored in the sales journal - it is received in cash

an entity satisfies a performance obligation

Which of the following will increase detection risk? - The auditor decides to increase the overall level of acceptable audit risk. - The auditor finds evidence that internal controls over end-of-period adjustments have not been properly applied. - An account balance is based on subjective estimates. - A client's inventory is susceptible to theft.

The auditor decides to increase the overall level of acceptable audit risk.

Which of the following would most likely cause the auditor to decline to accept an audit engagement? - The auditor discovers evidence that the prospective client's management may have been engaged in illegal acts at other companies that it controls. - The prospective client's overall profitability is lagging behind that of other companies in its industry. - Internal controls over the prospective client's processing over routine cash disbursements are poor. - The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques.

The auditor discovers evidence that the prospective client's management may have been engaged in illegal acts at other companies that it controls.

Which of the following statements appears in the scope paragraph of the audit report for a non-accelerated filer, but does not appears in the scope paragraph of the audit reports for an accelerated filer and/or large accelerated filer? - The auditor does not express an opinion on the effectiveness of the company's internal controls. - Auditing standards require the auditor to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. - The financial statements are presented fairly, in all material respects. - Management is responsible for the preparation and fair presentation of the financial statements.

The auditor does not express an opinion on the effectiveness of the company's internal controls.

When auditing a public company, which of the following impairs an auditor's independence? - The auditor has been a partner on the engagement for ten years - Offering audit services as well as preparing the tax return for the same client. - The auditor's spouse works in the assembly line of an audit client. - Lack of fee disclosure in the client's annual report.

The auditor has been a partner on the engagement for ten years

For an attributes sampling plan, the tolerable deviation rate is 4%, the computed upper deviation rate is 7%, the sample deviation rate is 3%, and the risk of assessing control risk too low is 5%. Which of the following is true? - The auditor must increase control risk because the risk of assessing control risk too low is greater than the tolerable deviation rate. - The auditor is likely to increase control risk because the risk of assessing control risk too low is greater than the tolerable deviation rate. - The auditor must increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate. - The auditor is likely to increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate.

The auditor is likely to increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate.

A company is engaged in a seasonal business where a substantial portion of its annual sales occur in the last month of the fiscal year. Which of the following approaches to auditing revenues is most appropriate for this company? - The auditor should select an extended sample of transactions occurring in the last month of the fiscal year and review supporting documentation. - The auditor should perform analytical procedures on sales at an interim date and discuss any changes between the interim date and fiscal year end with senior management. - The auditor should perform transactions testing at an interim date and use analytical procedures to gather evidence on the last month's sales. - The auditor should review inventory transactions for the last month of the fiscal year

The auditor should select an extended sample of transactions occurring in the last month of the fiscal year and review supporting documentation.

Which of the following is not a valid reason for reducing the extent of detailed audit testing on an account? - The auditor wants to make sure that the number of hours spent on the engagement does not go over budget. - Analytical procedures results indicate that the likelihood of material misstatement is low. - Internal control testing indicates a low level of control risk. - The cost of obtaining additional evidence outweighs its usefulness.

The auditor wants to make sure that the number of hours spent on the engagement does not go over budget.

Which of the following best explains why an auditor on a non-public company would test the operating effectiveness of a control procedure? - The auditor will be able to reduce the extent of substantive testing in areas that are affected by the control procedure. - The assessed level of control risk for the transactions affected by the procedure is high. - The control procedure is important in preventing or detecting material misstatements in the financial statements. - The assessed level of control risk for the transactions affected by the procedure is low

The auditor will be able to reduce the extent of substantive testing in areas that are affected by the control procedure.

Which of the following was not a huge implication for the audit profession from the passing of the Sarbanes-Oxley Act of 2002 (SOX)? Please circle the correct answer choice below. - The implementation of a peer review program to assess a rm's system of quality control for its private clients - The requirement for the reporting and testing of internal controls (Section 404) - The implementation of enhanced independence-related rules - The establishment of the Public Company Accounting Oversight Board (PCAOB)

The implementation of a peer review program to assess a rm's system of quality control for its private clients

Which of the following circumstances would most likely result in a standard unqualified opinion with an explanatory paragraph? - The auditor wishes to emphasize significant litigation pending against the client that is properly disclosed in the financial statements. - The client refuses to book an accrual for a material legal settlement that was pending as of the balance sheet date, but settled before the end of fieldwork. - The client's financial statements contain immaterial errors that were not corrected. - The client's legal counsel is requested to advise whether the client's actions constitute material noncompliance with tax law but refuses to do so.

The auditor wishes to emphasize significant litigation pending against the client that is properly disclosed in the financial statements.

Which of the following statements is correct with regard to the quality or appropriateness of evidential matter? - The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources. - Evidential matter must be either valid or relevant but need not be both. - Internal accounting data alone may be considered sufficient appropriate evidential matter to issue an unqualified opinion on financial statements. - Appropriateness of evidential matter refers to the amount of corroborative evidence to be obtained

The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources.

Which of the following appears first in the revised PCOAB audit opinion? - The auditor's opinion on the financial statements. - A reference to the internal control audit. - Statements regarding management's and the auditor's responsibility. - The scope paragraph.

The auditor's opinion on the financial statements.

Which of the following controls is most likely to help ensure that all credit revenue transactions of an entity are recorded? - The billing department supervisor matches pre-numbered shipping documents with entries in the sales journal - The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account each month - The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers - The billing department supervisor sends a copy of each approved sales order to the credit department for comparison to the customer's authorized credit limit and current account balance.

The billing department supervisor matches pre-numbered shipping documents with entries in the sales journal

Which of the following addresses the completeness assertion with respect to credit sales transactions? - The billing department supervisor matches pre-numbered shipping documents with entries in the sales journal. - The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances. - The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly. - The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences they report.

The billing department supervisor matches pre-numbered shipping documents with entries in the sales journal.

Samples to test internal controls are intended to provide a basis for an auditor to conclude whether: - The controls are operating effectively - The financial statements are materially misstated - The risk of incorrect acceptance is too high. - Materiality for planning purposes is at a sufficiently low level.

The controls are operating effectively

Which of the following statements about internal control is correct? - The cost-benefit relationship is a primary criterion that should be considered in designing an internal control system. - A properly maintained internal control system reasonably ensures that collusion among employees cannot occur. - An exceptionally strong internal control system is enough for the auditor to eliminate substantive procedures on a significant account balance. - The establishment and maintenance of internal control is an important responsibility of the internal auditor

The cost-benefit relationship is a primary criterion that should be considered in designing an internal control system.

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following? - The credit manager's opinion. - An aging schedule of past due accounts. - Subsequent year collections of amounts in accounts receivable at the balance sheet date. - Ratios calculated showing the past relationship of the valuation allowance to net credit sales.

The credit manager's opinion

Which of the following is not an inherent risk factor for the revenue process? - Complexity of revenue recognition issues. - Difficulty of auditing transactions. - Special industry practices. - The entity does not follow its stated policies for sales order approvals.

The entity does not follow its stated policies for sales order approvals.

Which of the following would an auditor most likely use in determining the auditor's overall materiality? - The entity's annualized interim (i.e. quarterly) financial statements. - The anticipated sample size for planned substantive procedures. - The results of the internal control questionnaire. - The contents of the management representation letter.

The entity's annualized interim (i.e. quarterly) financial statements.

Monitoring is a major component of the COSO Internal Control—Integrated Framework. Which of the following is not correct in how the company can implement the monitoring component? - The independent auditor can serve as part of the entity's control environment and continuous monitoring. - Monitoring and other audit work conducted by internal audit staff can reduce external audit costs - Monitoring can be an ongoing process. - Monitoring can be conducted as a separate evaluation.

The independent auditor can serve as part of the entity's control environment and continuous monitoring.

Which of the following is the best argument against the use of negative accounts receivable confirmations? - The cost-per-response is excessively high. - There is no way of knowing if the intended recipients received them. - Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment. - The inference drawn from receiving no reply may not be correct.

The inference drawn from receiving no reply may not be correct.

Which of the following is a valid reason to NOT test internal controls in a given area? - The internal controls appear to be ineffective in preventing or detecting material misstatements - The auditor's initial understanding indicates that control risk is low. - The auditor plans to rely on the control to reduce the extent of substantive testing. - The control is related to a significant account assertion on a publicly traded company

The internal controls appear to be ineffective in preventing or detecting material misstatements

Which of the following is not a concern as to whether a misstatement is qualitatively material? - The misstatement is less than 5% of pretax income. - The misstatement hides a failure to meet analysts' expectations. - The misstatement increases management's compensation. - The misstatement changes a small amount of profit to a small reported loss.

The misstatement is less than 5% of pretax income.

Which of the following is the most important qualitative factor that auditors should consider when making materiality judgments? - The misstatement will cause the client to fail to meet an earnings forecast. - A misstatement exceeded five percent of net income. - The auditor also provides consulting services to the audit client. - The audit committee is not well-educated about the accounting principle in question.

The misstatement will cause the client to fail to meet an earnings forecast.

According to the Code of Professional Conduct, which of the following individuals is not in a position to influence an attest engagement (i.e., not a covered member)? - The partner (or partner equivalent) in another office in a nearby city who regularly plays golf with the engagement partner (or partner equivalent) and does not work on the engagement or have any interaction with the client. - The office's IT expert partner, who consulted with the engagement partner (or partner equivalent) regarding the client's IT system and spent 15 hours on the engagement. - The office's managing partner (or partner equivalent) who determines the compensation of the attest engagement partner. - The office's partner (or partner equivalent) who monitors quality control over the attest engagement.

The partner (or partner equivalent) in another office in a nearby city who regularly plays golf with the engagement partner (or partner equivalent) and does not work on the engagement or have any interaction with the client.

Which of the following statements is correct concerning statistical sampling for tests of controls? - The population size has little or no effect on determining sample size except for very small populations. - The expected population deviation rate has little or no effect on determining sample size except for very small populations. - As the population size doubles, the sample size also should double. - For a given tolerable deviation rate, a larger sample size should be selected as the expected population deviation rate decreases.

The population size has little or no effect on determining sample size except for very small populations

Which of the following risks is related to effectiveness of testing? - The risk of incorrect rejection. - Inherent risk. - The risk of incorrect acceptance. - None of these.

The risk of incorrect acceptance

Audit risk is: - The risk of issuing an incorrect audit opinion. - The risk that audit procedures will fail to find material misstatements. - The overall risk of material misstatement. - The auditor's risk of loss from events arising in connection with a set of audited financial statements.

The risk of issuing an incorrect audit opinion.

Which of the following is a design deficiency in internal control? - The same individual records and deposits cash receipts. - The company's policy states that internal auditors should test controls over significant transactions once a year. - Accounts payable staff routinely process payments without required approvals from the purchasing manager. - Employees frequently ignore a policy that requires the storage area for high-value inventory to be secured at all times.

The same individual records and deposits cash receipts.

Which of the following statements is true? - The subject matter of attestation services typically covers a broader range than that for audit services. - An audit services provider must be independent, while an assurance services provider does not. - Audits require a report, while assurance engagements do not. - Assurance services do not require the provider to gather evidence.

The subject matter of attestation services typically covers a broader range than that for audit services.

Based on a 5% risk of assessing control risk too low, how would an auditor interpret a computed upper deviation rate of 7%? - The auditor is willing to accept a deviation rate of 7% before deciding not to rely on the control. - There is a 5% chance that the deviation rate in the population is less than 7%. - There is a 5% chance that the deviation rate in the population exceeds 7%. - There is a 95% chance that the deviation rate in the population equals 7%.

There is a 5% chance that the deviation rate in the population exceeds 7%

Which of the following statements is correct concerning statistical sampling in tests of controls? - There is an inverse relationship between the tolerable deviation rate and the sample size - As the population size increases, the sample size should increase proportionately - There is an inverse relationship between the expected population deviation rate and the sample size - In determining tolerable deviation rate, an auditor considers detection risk and the sample size.

There is an inverse relationship between the tolerable deviation rate and the sample size

What is the primary objective of testing all individually significant items rather than sample testing? - To accept no sampling risk for items greater than tolerable misstatement - To increase the audit risk at which a decision will be reached from the results of the sample selected. - To increase sample size. - To increase the size of the confidence bound around the projected misstatement.

To accept no sampling risk for items greater than tolerable misstatement

What is the primary objective of testing all individually significant items rather than sample testing? - To increase the audit risk at which a decision will be reached from the results of the sample selected. - To increase sample size. - To accept no sampling risk for items greater than tolerable misstatement. - To increase the size of the confidence bound around the projected misstatement.

To accept no sampling risk for items greater than tolerable misstatement.

According to the text, the first step in applying materiality to an audit is - To determine a materiality level for the overall financial statements - To determine tolerable misstatement for each account balance. - To aggregate the misstatements found in each account and determine their overall affect on the financial statements. - To ask management what constitutes a material amount in their business.

To determine a materiality level for the overall financial statements

Which of the following is the primary reason an external financial auditor evaluates internal controls? - To determine if the company's controls are likely to prevent, or detect and correct, material misstatements in the financial statements. - To determine if the company's controls allow it to operate effectively and efficiently. - To determine if the company has controls in place to ensure management integrity. - To determine if the company's controls ensure compliance with applicable laws and regulations.

To determine if the company's controls are likely to prevent, or detect and correct, material misstatements in the financial statements.

According to the text, each of the following is a main purpose for performing audit procedures except: - To develop recommendations for the control system. - To obtain an understanding of the entity and its environment. - To test the operating effectiveness of controls. - To detect material misstatements in the financial statements.

To develop recommendations for the control system.

Why was the Sarbanes-Oxley Act passed? - To restore investor confidence in the wake of a series of accounting scandals. - To better protect consumers from fraudulent lending practices. - To ease some of the regulatory burden on the accounting profession. - To make it easier for investors to recover assets from failed rms.

To restore investor confidence in the wake of a series of accounting scandals.

In which of the following cases would the auditor determine that statistical sampling should not be performed? - Tolerable deviation is large and expected population deviation is low. - Tolerable deviation is small and expected population deviation is high. - Tolerable deviation is large and expected population deviation is high. - Tolerable deviation is small and expected population deviation is low.

Tolerable deviation is small and expected population deviation is high.

For attributes sampling, of the three factors that enter into sample size determination, which two factors can the auditor adjust to reflect the importance of the control? - Tolerable deviation rate and confidence level. - Expected deviation rate and confidence level. - Population size and tolerable deviation rate. - Tolerable deviation rate and expected deviation rate.

Tolerable deviation rate and confidence level.

For attributes sampling, of the three factors that enter into sample size determination, which two factors may the auditor adjust to reflect the importance of the control? - Tolerable deviation rate and over-reliance risk - Expected deviation rate and over-reliance risk. - Population size and tolerable deviation rate. - Tolerable deviation rate and expected deviation rate

Tolerable deviation rate and over-reliance risk

Which of the following relationships is correct? - Tolerable misstatement and sample size are inversely related - Desired confidence level and sample size are inversely related. - Expected misstatement and sample size are inversely related - Tolerable misstatement and desired confidence level are directly related

Tolerable misstatement and sample size are inversely related

Which of the following is a test of controls for the transaction assertion of completeness for revenue? - Test a sample of sales invoices for authorized customer orders. - Review sales orders for proper credit approval. - Trace shipping documents to sales invoices and the sales journal. - Examine reconciliation of subsidiary ledger to general ledger control account.

Trace shipping documents to sales invoices and the sales journal.

Channel stuffing is an improper practice used to boost sales by inducing distributors to buy more inventory than they can promptly resell. - True - False

True

The revenue process affects numerous accounts in the financial statements: - True - False

True

The risk of material misstatement is the product of inherent risk and control risk. - True - False

True

Tolerable misstatement is also called performance materiality by the AICPA. - True - False

True

For each situation, state the appropriate audit report from the following alternatives: i) Adverse opinion on ICFR ii) Disclaimer of opinion on ICFR iii) Unqualified opinion on ICFR As a result of performing tests of controls, the auditor identified a significant deficiency in internal control over financial reporting. However, the auditor does not believe that it represents a material weakness in internal control. - Unqualified Opinion on ICFR - Adverse Opinion on ICFR - Disclaimer of Opinion on ICFR

Unqualified Opinion on ICFR

For each situation, state the appropriate audit report from the following alternatives: i) Adverse opinion on ICFR ii) Disclaimer of opinion on ICFR iii) Unqualified opinion on ICFR During interim testing, the auditor identified and communicated to management a significant control deficiency. Management immediately corrected the deficiency and the auditor was able to sufficiently test the newly-instituted internal control before the end of the fiscal period. - Unqualified Opinion on ICFR - Adverse Opinion on ICFR - Disclaimer of Opinion on ICFR

Unqualified Opinion on ICFR

An auditor was engaged to audit the financial statements of a company after its fiscal year had ended. The timing of the auditor's appointment made it infeasible to confirm accounts receivable by the date the audited financial statement's were to be delivered to the company's principal lender. However, the auditor was able to perform other procedures and was satisfied as to the reasonableness of the accounts receivable balances, as well as the other items in the client's financial statements. Which of the following types of audit opinions should be issued? - Unqualified opinion - Unqualified opinion with an emphasis-of-matter paragraph - Qualified opinion. - Disclaimer of opinion.

Unqualified opinion

One of the main objectives of performing analytical review procedures during the planning phase of the audit is to identify: - Unusual changes that may signal possible account misstatements - Transactions that have not been properly authorized. - Illegal acts undetected as a result of poor internal controls. - Inefficient operations.

Unusual changes that may signal possible account misstatements.

An entity requires credit approval before shipping goods to customers. Which of the following assertions does this support? Valuation Completeness Occurence Rights and Obligations

Valuation

Add all customer balances in the accounts receivable trial balance and agree the amount to the general ledger. This is a Balance-related assertion? Which assertion the auditor is testing for?

Valuation and Allowance

Discuss with credit department personnel the likelihood of collection of all accounts as of December 31, 2018 with a balance greater than $100,000 and greater than 90 days old as of year-end. This is a Balance-related assertion? Which assertion the auditor is testing for?

Valuation and Allowance

A confirmation is used to: - Verify a representation from a third party. - Verify the inventory count is correct. - Verify that a control is being observed. - Verify that a specific trend is correct.

Verify a representation from a third party.

Which of the following contains a listing of unaudited account balances and adjusting entries? - Working trial balance. - Permanent file. - Lead schedule. - Bank reconciliation.

Working trial balance.

Please circle the answer choice below that best completes the missing phrase at the end of the following definition of materiality - "A misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of: - a reasonable user of the statements - the auditor - management or the board of directors - anyone

a reasonable user of the statements

The Sarbanes-Oxley Act prohibited auditors from providing certain services to their audit clients including: a) Bookkeeping or related financial statement services b) Management functions or human resources c) Tax services - a) and b) - a) - only b) and c) - a), b), and c)

a) and b)

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about: - accuracy, valuation and allocation. - completeness. - existence. - rights and obligations.

accuracy, valuation and allocation.

If the independent auditors decide that it is efficient to consider how the work performed by the internal auditors may affect the nature, ming, and extent of audit procedures, they should assess the internal auditors': - competence and objectivity. - efficiency and experience. - independence and review skills. - training and supervisory skills

competence and objectivity.

When tracing a sample of shipping documents from throughout the year to the details of the sales invoices and to the sales journal and customers' accounts receivable subsidiary ledger, the auditor is testing the _____________ assertion. - classification - cutoff - existence - completeness

completeness

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess the assertion of: - authorization and accuracy. - completeness. - cutoff. - occurrence.

completeness.

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because: - many customers merely sign and return the confirmation without verifying its details. - recipients usually respond only if they disagree with the information on the request. - customers may not be inclined to report understatement errors in their accounts. - auditors typically select many accounts with low recorded balances to be confirmed

customers may not be inclined to report understatement errors in their accounts.

A control is deemed to be more important than thought at the time that attributes sampling parameters were set. The auditor is most likely to respond by: - decreasing the risk of assessing control risk too high. - increasing population size. - decreasing the tolerable deviation rate. - decreasing the expected deviation rate.

decreasing the tolerable deviation rate

The likelihood of assessing control risk too high is the risk that the sample selected to test controls: - does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment. - contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes. - contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole. - does not support the tolerable misstatement for some or all of management's assertions.

does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment

The risk of incorrect acceptance relates to the: - effectiveness of the audit. - efficiency of the audit. - preliminary estimates of materiality levels. - tolerable misstatement.

effectiveness of the audit.

A written understanding between the auditor and the entity concerning the auditor's responsibility for fraud is usually set forth in a(n): - engagement letter. - management letter. - internal control letter. - letter of audit inquiry.

engagement letter.

The Public Company Accounting Oversight Board does not: - establish auditing standards that must be followed by all CPAs. - perform inspections of the quality controls at audit rms that audit public companies. - oversee auditors of public companies. - perform any of the functions mentioned in the choices.

establish auditing standards that must be followed by all CPAs.

Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to: - evaluate internal control over credit sales. - test the accuracy of recorded credit sales. - evaluate the allowance for doubtful accounts. - verify the existence of the recorded receivables.

evaluate the allowance for doubtful accounts.

Once a CPA has determined that accounts receivable has increased because of slow collection in a "tight money" environment, the CPA would be likely to: - increase the balance in the allowance for bad debts account. - review the going concern ramifications. - require the entity to tighten its credit policy. - expand tests regarding the collectability of receivables.

expand tests regarding the collectability of receivables.

To determine the sample size for a test of controls, an auditor should consider the tolerable deviation rate, the desired confidence level, and the: - expected population deviation rate. - computed upper precision limit. - risk of assessing control risk too high. - risk of incorrect rejection.

expected population deviation rate

In performing an attest engagement, a CPA typically - expresses a conclusion about an assertion. - supplies litigation support services. - assesses control risk at a low level - provides management consulting services.

expresses a conclusion about an assertion.

If accounts receivable turnover (credit sales/receivables) was 7.1 times last year compared to only 5.6 times in the current year, it is possible that there were: - fictitious sales in the current year. - more thorough credit investigations made by the company late last year - unrecorded credit sales in the current year. - unrecorded cash receipts last year.

fictitious sales in the current year

The tolerable deviation rate for a test of controls is generally: - lower than the expected rate of deviations in the related accounting records. - higher than the expected rate of deviations in the related accounting records. - identical to the expected rate of deviations in the related accounting records. - unrelated to the expected rate of deviations in the related accounting records.

higher than the expected rate of deviations in the related accounting records.

The formula for non-statistical sampling sample sizes provided by the AICPA - must be used for non-statistical sampling. - includes a provision for the risk of incorrect acceptance. - includes a measure for the expected misstatement in the population - is largely based on the variation of items in the account.

includes a measure for the expected misstatement in the population

While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. Such a situation illustrates the risk of - incorrect rejection. - incorrect acceptance. - assessing control risk too high. - assessing control risk too low.

incorrect rejection.

In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was: - the only deviation discovered in the sample. - identical to a deviation discovered during the prior year's audit. - caused by an employee's oversight. - initially concealed by a forged document.

initially concealed by a forged document.

Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor's working papers. The prospective client's refusal to permit this will bear directly on Hawkins' decision concerning the: - integrity of management. - adequacy of the preplanned audit program. - ability to establish consistency in application of accounting principles between years. - apparent scope limitation.

integrity of management.

An underlying feature of random-based selection of items is that each: - stratum of the accounting population be given equal representation in the sample. - item in the accounting population be randomly ordered. - item in the accounting population should have an opportunity to be selected. - item must be systematically selected using replacement.

item in the accounting population should have an opportunity to be selected.

In non-statistical sampling for tests of controls, increasing the desired confidence level results in a: - higher tolerable deviation rate. - lower expected deviation rate. - larger sample size. - smaller sample size.

larger sample size

Tolerable misstatement is: - materiality used to establish a scope for the audit procedures for the individual account balance - materiality for the balance sheet as a whole. - materiality for the income statement as a whole. - the amount of misstatement that management is willing to tolerate in the financial statements

materiality used to establish a scope for the audit procedures for the individual account balance

Auditors who prefer statistical sampling to non-statistical sampling may do so because statistical sampling helps the auditor: - measure the sufficiency of the evidential matter obtained. - eliminate the cost of training auditors in the proper use of sampling techniques. - reduce the level of tolerable misstatement to a relatively low amount. - minimize the failure to detect a material misstatement due to non-sampling risk.

measure the sufficiency of the evidential matter obtained.

Statistical sampling provides a technique for: - exactly defining materiality. - greatly reducing the amount of substantive testing. - eliminating the additional cost of designing and conducting the sampling application. - measuring the sufficiency of evidential matter.

measuring the sufficiency of evidential matter.

As generally conceived, the audit committee of a publicly held company should be made up of: - members of the board of directors who are not officers or employees. - the audit partner, the chief financial officer, the legal counsel, and at least one outsider. - representatives of the major equity interests (preferred stock, common stock). - representatives from the entity's management, investors, suppliers, and customers.

members of the board of directors who are not officers or employees.

As a result of tests of controls, an auditor incorrectly assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was: - more than the risk of assessing control risk too low based on the auditor's sample. - more than the deviation rate in the auditor's sample. - less than the risk of assessing control risk too low based on the auditor's sample. - less than the deviation rate in the auditor's sample.

more than the deviation rate in the auditor's sample.

As a result of tests of controls, an auditor over relied on internal control and decreased substantive testing. This over-reliance occurred because the true deviation rate in the population was: - less than the risk of assessing control risk too low on the auditor's sample. - less than the deviation rate in the auditor's sample. - more than the risk of assessing control risk too low on the auditor's sample. - more than the deviation rate in the auditor's sample.

more than the deviation rate in the auditor's sample.

For private companies, accounting rms are prohibited from providing: - none of these. - outsourced internal audit services. - audit services. - review services.

none of these.

When a sample of sales transactions recorded in the sales journal is traced back to the customer orders and shipping documents, the auditor is testing the ____________ assertion. - cutoff - authorization and accuracy - completeness - occurrence

occurrence

An advantage of using statistical over non-statistical sampling methods in tests of controls is that the statistical methods: - afford greater assurance than a non-statistical sample of equal size. - provide an objective basis for quantitatively evaluating sample risks. - can more easily convert the sample into a dual-purpose test useful for substantive testing. - eliminate the need to use judgment in determining appropriate sample sizes.

provide an objective basis for quantitatively evaluating sample risks.

A violation of the profession's ethical standards would most likely occur when a CPA who: - refused to hire a new employee does so because the CPA deemed the candidate to be "too old." - is also admitted to the Bar represents on letterhead to be both an attorney and a CPA. - writes a newsletter on financial management also permits a publishing company to solicit subscriptions by direct mail. - is controller of a bank permits the bank to use the controller's CPA title in the listing of officers in its publications.

refused to hire a new employee does so because the CPA deemed the candidate to be "too old."

In the confirmation of accounts receivable, the auditor would most likely: - send negative confirmations when the assessed risk of material misstatement is high. - seek to obtain positive confirmations for at least 50% of the total dollar amount of the receivables. - require confirmation of all receivables from agencies of the federal government. - require that confirmation requests be sent as soon as possible after fiscal year-end.

require that confirmation requests be sent as soon as possible after fiscal year-end.

In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a: - restaurant where the CPA dines frequently. - charitable organization in which an employee of the CPA serves as treasurer. - municipality in which the CPA owns $25,000 of the $2,500,000 indebtedness of the municipality. - company in which the CPA's private investment club owns a one-tenth interest.

restaurant where the CPA dines frequently.

When reviewing bank confirmations for any liens on receivables, the auditor is testing the ______________ assertion. - valuation and allocation - rights and obligations - existence - completeness

rights and obligations

An auditor who uses statistical sampling for attributes in testing internal controls is most likely to reduce the planned reliance on a prescribed control when the: - sample deviation rate plus the allowance for sampling risk equals the tolerable deviation rate. - sample deviation rate is less than the expected population deviation rate used in planning the sample. - tolerable deviation rate less the allowance for sampling risk exceeds the sample deviation rate. - sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

Smith is engaged in the audit of a cable TV firm that services a rural community. All receivable balances are small, customers are billed monthly, and internal control is effective. To determine the existence of the accounts receivable balances at the balance sheet date, Smith would most likely: - send positive confirmation requests. - send negative confirmation requests. - examine evidence of subsequent cash receipts instead of sending confirmation requests. - use statistical sampling instead of sending confirmation requests.

send negative confirmation requests.

Cooper, CPA is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely: - send positive confirmation requests. - send negative confirmation requests. - examine evidence of subsequent cash receipts. - inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

send positive confirmation requests.

If the expected deviation rate exceeds the tolerable deviation rate, the auditor is most likely to: - have a large sample size. - set control risk at the maximum without sampling. - set control risk at the minimum without sampling. - pick a lower risk of assessing control risk too low to increase sample size.

set control risk at the maximum without sampling.

If auditors conducting attributes sampling found that the entity deviated from a prescribed control in nine of the first 10 items examined, the auditor is most likely to: - increase sample size. - increase the computed upper deviation rate. - decrease the tolerable deviation rate. - stop the test and increase control risk.

stop the test and increase control risk.

In auditing accounts receivable, the negative form of confirmation request most likely would be used when: - recipients are likely to return positive confirmation requests without verifying the accuracy of the information. - the combined assessed level of inherent and control risk relative to accounts receivable is low. - a small number of accounts receivable are involved but a relatively large number of errors are expected. - the auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

the combined assessed level of inherent and control risk relative to accounts receivable is low.

The term precision relates to: - the difference between confidence level and estimated error. - the difference between confidence level and tolerable error. - the difference between expected and tolerable deviation rate. - the difference between expected and sample deviation rate.

the difference between expected and tolerable deviation rate

The use of the ratio projection is most effective when - the dollar amount of the misstatement is expected to relate to the dollar amount of items tested. - a small number of differences exist in the population. - estimating populations whose records consist of quantities but not book values. - large understatement differences exist in the population.

the dollar amount of the misstatement is expected to relate to the dollar amount of items tested.

The confidence factor for non-statistical sampling is based on - the number of items in the account. - auditor judgment. - the risk of misstatement in the account and the level of desired confidence. - variability in the population and the risk of misstatement in the account.

the risk of misstatement in the account and the level of desired confidence.

The confidence factor for non-statistical sampling is based on: - the risk of misstatement in the account and the level of desired confidence. - the number of items in the account. - auditor judgment - variability in the population and the risk of misstatement in the account.

the risk of misstatement in the account and the level of desired confidence.

The computed upper deviation rate is: - the maximum rate of deviations that the auditor is willing to accept before deciding not to rely on the control. - the rate of deviations that the auditor expects to occur in the population. - a point estimate of the population deviation rate. - the sum of the sample deviation rate and an appropriate allowance for sampling risk.

the sum of the sample deviation rate and an appropriate allowance for sampling risk.

In determining the sample size for a test of controls, an auditor should consider the expected population deviation rate, desired confidence level, and the: - tolerable deviation rate. - risk of incorrect acceptance. - nature and cause of deviations. - population size.

tolerable deviation rate.

An auditor plans to examine a sample of 20 checks for countersignatures as prescribed by the entity's internal control procedures. One of the checks in the chosen sample of 20 cannot be found. The auditor should consider the reasons for this limitation and: - evaluate the results as if the sample size had been 19. - treat the missing check as a deviation for the purpose of evaluating the sample. - treat the missing check in the same manner as the majority of the other 19 checks (i.e., countersigned or not). - choose another check to replace the missing check in the sample.

treat the missing check as a deviation for the purpose of evaluating the sample.

To reduce the risks associated with accepting electronic responses to requests for confirmation of accounts receivable, an auditor most likely would: - validate the sender of electronic information. - examine subsequent cash receipts for the accounts in question. - consider the electronic responses to the confirmations to be exceptions. - mail second requests to the electronic respondents.

validate the sender of electronic information.

When a CPA is approached to perform an audit for the first me, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining: - whether the engagement should be accepted. - whether the predecessor's work should be utilized. - whether, in the predecessor's opinion, the financial statements are materially correct. - whether, in the predecessor's opinion, the company's internal controls have been satisfactory.

whether the engagement should be accepted.