ACC 401 Ch.4 Review

A management's specialist most likely is useful to

Assist the client in preparing the financial statements.

An auditor may refer to and identify an auditor's external specialist in the auditor's report if the

Auditor expresses a disclaimer of an opinion as a result of the specialist's findings.

When assessing the internal auditors' competence, the auditor should obtain information about the

Educational background and professional certification of the internal auditors.

Which of the following events most likely indicates the existence of related parties?

Making a loan without scheduled terms for repayment of the funds.

Buldger Retailing, Inc., has an internal auditing staff of four full-time auditors. The auditor has determined that the internal auditors are competent and objective. The auditor may share which of the following responsibilities with Buldger's internal auditors?

Performing substantive procedures.

In evaluating the reasonableness of an entity's accounting estimates, an auditor normally is concerned about assumptions that are

Susceptible to bias

Which of the following statements is correct regarding accounting estimates?

The auditor's objective is to evaluate whether accounting estimates are reasonable in the circumstances.

For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective? 1. Assessment of Inherent risk 2. Assessment of Control risk

1. No 2. No

For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective? 1. Materiality of misstatements 2. Evaluation of significant accounting estimates

1. No 2. No

During an audit, an internal auditor may provide direct assistance to an independent CPA in 1. Obtaining an understanding of internal control 2. Performing tests of controls 3. Performing substantive tests

1. Yes 2. Yes 3. Yes

Which approach to planning, performing, supervising, reviewing, and documenting internal audit activities distinguishes it from other monitoring controls that may be performed within the entity?

A systematic and disciplined approach.

The existence of a related party transaction may be indicated when another entity

Absorbs expenses of the corporation.

When assessing an internal auditor's competence, an auditor ordinarily obtains information about all of the following except

Access to information about related parties.

The company being audited has an internal auditor that is both competent and objective. The auditor wants to assign tasks for the internal auditor to perform. Under these circumstances, the auditor may

Allow the internal auditor to perform tests of internal controls.

Which of the following statements is correct regarding an independent auditor's reliance on a client's internal audit staff?

An independent auditor should assess the organizational status of the director of internal audit.

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

Auditor's report contains a qualified opinion.

Which of the following most likely would indicate the existence of related parties?

Borrowing money at an interest rate significantly below the market rate.

When assessing internal auditors' objectivity, an auditor should

Consider the policies that prohibit the internal auditors from auditing areas where they were recently assigned

When assessing internal auditors' objectivity, an auditor should

Consider the policies that prohibit the internal auditors from auditing areas where they were recently assigned.

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

Consistently applied from prior periods

In assessing the objectivity of internal auditors, an independent auditor should

Determine the organizational level to which the internal auditors report.

After identifying related party transactions, an auditor most likely would

Determine whether the transactions were approved by the board of directors or other appropriate officials.

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

Evaluate the business purpose of the transaction.

An internal auditor would least likely provide direct assistance to the auditor in

Evaluating accounting estimates.

An internal auditor's work would most likely affect the nature, timing, and extent of an independent auditor's auditing procedures when the internal auditor's work relates to assertions about the

Existence of fixed asset additions.

George Karl, an auditor with extensive experience in the retail industry, is assigned to audit the reasonableness of accounting estimates in the Year 1 financial statements of Haas Company. Haas, which was formed in Year 1, markets fishing lures. Which of the following is the least important consideration for Karl's audit of the reasonableness of accounting estimates?

Karl has never been involved in an audit of a company that sells fishing lures.

Auditors should obtain and evaluate sufficient appropriate evidence to support significant accounting estimates. Differences between the estimates best supported by the evidence and those in the financial statements

May be individually reasonable but collectively indicate possible bias.

Miller Retailing, Inc., maintains a staff of three full-time internal auditors. The independent auditor has found that they are competent and objective. Moreover, the work of the internal auditors is relevant to the audit, and it is efficient to consider how that work may affect the audit. The independent auditor most likely will

Nevertheless need to make direct tests of assertions about material financial statement amounts for which the risks of material misstatement are high.

In connection with the audit of financial statements by an auditor, the client suggests that members of the internal audit staff be used to minimize audit costs. For which of the following tasks may the auditor most appropriately request direct assistance from the internal audit staff?

Preparation of schedules for negative accounts receivable responses.

Which of the following procedures would most likely assist an auditor in identifying related party transactions?

Review the minutes of the meetings of the board of directors and its committees.

Which of the following events most likely would indicate the existence of related parties?

Selling real estate at a price significantly different from appraised value.

Which of the following events most likely would indicate the existence of related party transactions?

Selling real estate at a price that differs significantly from its appraised value.

An auditor most likely modifies the opinion if the entity's financial statements include a note on related party transactions

Stating without substantiation that a particular related party transaction occurred on terms equivalent to those that would have prevailed in an arm's-length transaction.

Which of the following factors would the independent auditor most likely consider in assessing the objectivity of an internal auditor?

The audit committee reviews employment decisions related to the director of internal auditing.

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

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

Under which of the following circumstances would an auditor be considered to be using the work of a specialist?

The auditor engages a lawyer to interpret the provisions of a complex contract.

Which of the following statements is true about related party transactions?

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

Which of the following statements concerning the auditor's use of the work of an auditor's external specialist is true?

The auditor's specialist should observe the same confidentiality requirements as the auditor.

For a reporting entity that has participated in related party transactions that are material, disclosure in the GAAP-based financial statements should include

The nature of the relationship and the terms and manner of settlement.

Which of the following factors most likely would assist an auditor in assessing the objectivity of the internal auditor?

The organizational status of the director of internal audit.

The independent auditor should understand the internal audit function as it relates to internal control because

The work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures.

An auditor might consider the procedures performed by the internal auditors because

They are employees whose work may affect the nature, timing, and extent of audit procedures