Chapter 5

Which of the following documentation is not required for an audit in accordance with auditing standards?

A client letter that details the auditor's planned field work.

Which of the following statements about evidence is true?

A client's accounting records cannot be considered sufficient appropriate audit evidence on which to base the auditor's opinion.

Which of the following would not necessarily be a related party transaction?

A sale to another corporation with a similar name.

Which of the following is usually included or shown in the audit documentation?

A summary of how significant findings were addressed.

A CPA is conducting the first audit of a nonissuer's financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor's audit documentation. This procedure is...

Acceptable if the client and the predecessor auditor agree to it.

Which of the following presumptions is least likely to relate to the reliability of audit evidence?

An auditor's opinion is formed within a reasonable time to achieve a balance between benefit and cost.

Although the quantity and content of audit documentation vary with each engagement, an auditor's permanent files most likely include...

Analyses of capital stock and other owners' equity accounts.

Which of the following in a predecessor's audit documentation is the auditor least likely to be interested in reviewing?

Analysis of income statement accounts.

Using personal computers in auditing may affect the methods used to review the work of staff assistants because...

Audit documentation may not contain readily observable details of calculations.

Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to provide a reasonable basis for an opinion?

Auditor judgment.

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

Auditor's report contains a qualified opinion.

An auditor's audit documentation will least likely show how the...

Client's schedules were prepared.

Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should...

Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable.

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.

Audit documentation that records the procedures used by the auditor to gather evidence should be...

Designed to meet the circumstances of the particular engagement.

Each of the following might, by itself, form a valid basis for an auditor to decide to omit a procedure except for the...

Difficulty and cost involved in testing a particular item.

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.

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be dissociated from the resolution of the matter. The audit documentation would probably be...

Expanded to detail the assistant auditor's position and how the difference of opinion was resolved.

In the course of the audit of financial statements for the purpose of expressing an opinion, the auditor will normally prepare a schedule of uncorrected misstatements. The primary purpose served by this schedule is to...

Identify the potential financial statement effects of misstatements that were not considered clearly trivial when discovered.

Which of the following steps should an auditor perform first to determine the existence of related parties?

Inquire about the existence of related parties from management.

Which of the following procedures would provide the most reliable audit evidence?

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

Which of the following is not considered an auditor's specialist?

Internal auditor.

When performing procedures to identify and assess the risks of material misstatement for accounting estimates, the auditor should...

Obtain an understanding of how management developed its estimates.

Most of the auditor's work in forming an opinion on financial statements consists of...

Obtaining and evaluating audit evidence.

An auditor ordinarily uses a working trial balance resembling the financial statements without notes, but containing columns for...

Reclassifications and adjustments.

An auditor would be most likely to consider modifying an otherwise unmodified opinion if the client's financial statements include a note on related party transactions...

Representing without substantiation that certain related party transactions were consummated on terms equivalent to those obtainable in transactions with unrelated parties.

Ajax, Inc., is an affiliate of the audit client and is audited by another firm of auditors. Which of the following is most likely to be used by the auditor of the client to obtain assurance that all guarantees of the affiliate's indebtedness have been detected?

Review client minutes and obtain a representation letter.

Which of the following procedures will most likely assist an auditor in determining whether management has identified all accounting estimates that could be material to the financial statements?

Review the lawyer's letter for information about litigation.

Assuming a low assessed risk of material misstatement, which of the following audit procedures would be least likely to be performed?

Search for unrecorded cash receipts.

Which of the following statements is most accurate regarding sufficient and appropriate documentation?

Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.

A client used a suspense account for unresolved questions whose final accounting has not been determined. If a balance remains in the suspense account at year-end, the auditor would be most concerned about...

Suspense debits that management believes will benefit future operations.

In using the work of an auditor's external specialist, an agreement should exist between the auditor and the specialist ad to the nature of the specialist work. This agreement most likely should include...

The applicability of the same confidentiality requirements to the auditor and the specialist.

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.

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 is true about the use of the work of an auditor's specialist?

The auditor should obtain an understanding of the method and assumptions used by the specialist.

An auditor searching for related party transactions should obtain an understanding of each subsidiary's relationship to the total entity because...

The business structure may be deliberately designed to obscure related party transactions.

Which of the following statements about audit evidence is true?

The sufficiency and appropriateness of audit evidence is a matter of professional judgment.

The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of...

Transactions.

After audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up audit documentation review. This second review usually focuses on...

Whether the financial statements are consistent with the auditor's understanding of the entity.

The audit working paper that reflects the major components of an amount reported in the financial statements is the...

lead schedule.