Quiz 17
Which of the following statements represents a quality control requirement under Government Auditing Standards?
A CPA seeking to enter into a contract to perform an audit should provide the CPA's most recent external quality control review report to the party contracting for the audit.
Which of the following is not an event that could introduce or change financial reporting risks?
A large sale consisting of 3% of yearly sales
Significant economic, accounting, and other developments may affect risk. These external and internal events could adversely affect an entity's ability to:
All of the answer choices are correct.
Uncertainties in the financial markets and the current economic environment may create questions about which of the following?
All of the answer choices are correct.
Which of the following elements should be encompassed by the quality control policies and procedures of an auditing firm? a. Acceptance and continuance of client relationships and specific engagements b. Relevant ethical requirements c. Human resources d. Engagement performance e. Monitoring
All of the elements listed
Which of the following statements is correct concerning an auditor's assessment of control risk?
Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control.
Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures?
Assigning personnel to engagements
The auditor determines that effective internal controls exist for all relevant assertions related to a material class of transactions, account balance, and disclosure. As a result, the auditor can elect to perform which of the following tests? I. Tests of controls II. Substantive procedures III. Analytical procedures
Both I and II
Would the following factors ordinarily be considered in planning an audit engagement's personnel requirements? I. Opportunities for on-the-job training II. Continuity and periodic rotation of personnel
Both I and II
Which of the following are items of a CPA firm's quality control that should be considered in establishing its quality control policies and procedures?
Both advancement of personnel and consultation
How would an auditor of a nonissuer most appropriately respond to a heightened assessed risk of material misstatement?
By assigning more experienced staff or those with specialized skills to high-risk areas
How should differences of opinion between the engagement partner and the quality control reviewer be resolved?
By following the firm's policies and procedures
As part of a fraud audit, a CPA wishes to identify employees with invalid Social Security numbers in the client's payroll-transaction data. Which of the following audit tests of controls using computer-assisted audit techniques would best meet the objective?
Comparing Social Security numbers paid in the payroll transaction file to a file of government- authorized Social Security numbers
Which of the following is an element of a CPA firm's quality control policies and procedures applicable to the firm's accounting and auditing practice?
Engagement performance
Which of the following actions should a CPA firm take to comply with the AICPA's quality control standards?
Establish policies to ensure that the audit work meets applicable professional standards
Which of the following levels would most likely address the risk of material misstatement by the auditor's consideration of an entity's control environment?
Financial statements
Which of the following is not a quality control policy or procedure related to engagement supervision?
Hiring and advancement of engagement personnel
The nature and extent of a CPA firm's quality control policies and procedures depend on: I. the CPA firm's size. II. the nature of the CPA firm's practice. III. cost-benefit considerations.
I, II, and III
When monitoring a firm's accounting and auditing practice, which of the following effects should be considered? I. The firm's management philosophy II. The environment in which the firm practices III. The environment in which its clients operate
I, II, and III
The only way to determine risk within an organization is through:
None of the answer choices are correct.
Which of the following procedures would an auditor most likely include in the initial planning phase of a financial statement audit?
Obtain an understanding of the entity's risk assessment process
In an audit of financial statements for which an auditor's assessment of risk is judgmental and may not be sufficiently precise to identify all risks of material misstatement, the auditor should take which of the following actions?
Perform substantive procedures for all relevant assertions related to each material class of transactions
Which of the following procedures would an auditor most likely use to identify unusual year-end transactions?
Performing analytical procedures
Which of the following results of analytical procedures would most likely indicate possible unrecorded liabilities?
Ratio of accounts payable to total current liabilities of 4:1, compared to 6:1 for the prior period
Which of the following is not a quality control policy or procedure related to engagement supervision?
Scheduling vacations and other paid time off
Which of the following courses of action is the most appropriate if an auditor concludes that there is a high risk of material misstatement?
Select more effective substantive tests
Which of the following is not a quality control policy or procedure related to the review of work performed by other engagement team members?
Significant conclusions reached on the engagement are discussed with the firm's peer reviewer.
Which of the following is not a quality control policy or procedure related to the review of work performed by other engagement team members?
Summarization of findings from the firm's annual inspection
The firm should establish criteria against which all engagements are to be evaluated to determine whether an engagement quality control review should be performed. Which of the following is not a consideration included in an engagement quality control review?
That the engagement quality control reviewer may make recommendations to the engagement partner but must defer to his or her judgment when differences of opinion exist
Which of the following best identifies the effect of an increase in the risk of material misstatement on detection risk and the extent of substantive procedures?
The acceptable level of detection risk decreases, and the extent of substantive procedures increases.
Based on the assessed risk of material misstatement at the relevant assertion level, the auditor should consider which of the following matters in designing further audit procedures?
The characteristics of the class of transactions, account balance, or disclosure involved
The auditor should consider certain factors in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details. In determining whether and to what extent analytical procedures should be used, which of the following should the auditor consider?
The nature of the assertion tested
Which of the following is an important consideration when deciding the nature of tests to use in a financial statement audit?
The procedures to be applied on a particular engagement are a matter of the auditor's professional judgment.
Which of the following could indicate source document fraud?
The same invoice number appears on different invoices.
Which of the following could be difficult to determine because electronic evidence may not be retrievable after a specific period?
The timing of control and substantive tests
While performing interim audit procedures of accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate?
Use more experienced audit team members to perform year-end testing
Which of the following control objectives is achieved by reviewing and testing control procedures over physical inventory count?
Verification of existence of inventory
Providing more supervision during an audit of a nonissuer in response to assessed risks of material misstatement at the financial statement level is an example of:
an overall response.
When performing risk assessment procedures, the auditor should document all of the following concerning risks identified, the related controls evaluated, and the responses to the risks assessed except for:
analytical procedures in the overall review phase of the audit.
Statement on Quality Control Standards 8 requires a system of quality control for a firm's accounting and auditing services. Accounting and auditing services would include all of the following areas, except:
consulting services.
Effective policies and procedures ask that the auditor adequately plan the work and properly supervise any assistants. These policies and procedures are ordinarily interpreted to require:
critical review of the judgment exercised at every level of supervision.
The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to:
document the details of the disagreement with the conclusion reached.
The auditor's overall responses to address the assessed risks of material misstatement at the financial statement level may include all of the following except:
examining inventory counts.
A CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards by:
having an appropriate system of quality control.
The auditor with final responsibility has a primary supervisory responsibility to explain to the staff assistants:
how the results of various auditing procedures performed by the assistants should be evaluated.
The objective of an ordinary audit of financial statements by the independent auditor is the expression of an opinion on the fairness with which they present, in all material respects, the financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. The auditor's responsibilities regarding such an engagement include:
identifying circumstances in which generally accepted accounting principles have not been consistently observed.
A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards by:
maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure.
The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to:
minimize the likelihood of association with clients whose management lacks integrity.
The primary purpose of establishing quality control policies and procedures for deciding whether to accept new clients is to:
minimize the likelihood of association with clients whose management lacks integrity.
If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is:
not independent and, therefore, may not issue a review report.
A CPA firm should establish procedures for conducting and supervising work at all organizational levels to provide reasonable assurance that the work performed meets the firm's standards of quality. To achieve this goal, the firm most likely would establish procedures for:
reviewing engagement working papers and reports.
The nature and extent of a CPA firm's quality control policies and procedures will depend on various factors, including its:
size and operating characteristics.
An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing, and extent of the:
substantive tests.
After assessing the risk of material misstatement at the relevant assertion level, the auditor determines that performing only substantive procedures is appropriate for specific relevant assertions and risk. The auditor came to this conclusion because:
the auditor's risk assessment procedures have not identified any effective controls relevant to the assertion
When determining that risk of fraud exists, the auditor will respond to those risks in the following ways except:
the nature, timing and extent of audit procedures will not change.
The members of the audit team, including the auditor with final responsibility for the audit, should discuss:
the susceptibility of the entity's financial statements to material misstatement.
As the acceptable level of detection risk increases, an auditor may change the:
timing of substantive tests from year-end to an interim date.
