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47 Cards in this Set

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Which of the following is not one of the three main reasons why the auditor should properly plan engagements?
To enable proper on-the-job training of employees.
A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the
acceptable audit risk.
A measure of the auditor’s assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client’s internal control is
inherent risk.
The auditor is likely to accumulate more evidence when the audit is for a company
All three of the above.
None
Which of the following is not typically included in initial audit planning?
Perform preliminary analytical procedures.
Most auditors assess inherent risk as high for related parties and related-party transactions because
of the accounting disclosure requirement and of the lack of independence between the parties (both a and b).
Which of the following is not correct regarding the communications between successor and predecessor auditors?
The burden of initiating the communication rests with the predecessor auditor.
Which of the following is not a document or record that should be examined early in the engagement?
Management letter.
Which of the following is not a potential effect of an auditor’s decision that a lower acceptable audit risk is appropriate?
Less evidence is required.
It is easier and more common to implement increased evidence accumulation for inherent risk than for acceptable audit risk because
inherent risk can usually be isolated to one or two accounts.
If an auditor is requested to perform nonaudit services for a public company audit client, who is responsible for agreeing to those services with the audit firm?
The client’s audit committee.
When a company changes auditors, SAS No. 84 requires communication between the predecessor and successor auditors. The burden of initiating the communication rests with the
successor.
Investigation of new clients and reevaluation of existing ones is an essential part of deciding
acceptable audit risk.
The purpose of an engagement letter is to
document the terms of the engagement to writing in order to minimize misunderstandings.
One means of informing the client that the auditor is not responsible for the discovery of all acts of fraud is the
engagement letter.
An extensive understanding of the client’s business and industry and knowledge about the company’s operations are essential for doing an adequate audit. For a new client, most of this information is obtained
at the client’s premises.
Which of the following factors partially explains the increased importance of understanding the client’s business?
all of the above.
None
The least effective method of identifying related parties would be
a review of the purchases and sales journals for the period under audit.
The official record of the meetings of the board of directors and stockholders is contained in the corporate
minutes.
Why do auditors need to obtain an understanding of a client’s industry and external environment?
Certain industries have different business risks than others.
An understanding of a client’s external environment includes
all of the above.
None
Which of the following does SAS 45 not identify as a related party?
Line employees of the company.
Related parties are commonly identified in which of the following ways?
all of the above.
None
A tour of the client’s facilities is helpful in obtaining an understanding of the client’s operations because
all of the above.
None
Which of the following is the most likely first step an auditor would perform at the beginning of an initial audit engagement?
Tour the client’s facilities and review the general records.
An auditor should examine minutes of the board of directors’ meetings
through the date of the audit report.
The corporate minutes are the official record of the meetings of the board of directors and stockholders. The minutes typically include authorizations related to which of the following?
all of the above.
None
Which of the following is correct with respect to a company’s corporate charter?
The corporate charter includes the exact name of the corporation, the date of incorporation, and the types of business the corporation is authorized to conduct.
Which of the following is true with respect to a company’s performance measurement system?
A performance measurement system should include measures that aid the company in assessing progress towards its objectives.
In what order should the following steps occur? A. Assess client business risk, B. Understand the client’s business and industry, C. Perform preliminary analytical procedures, D. Assess risk of material misstatements.
B, A, D, C.
Which of the following steps would be least likely to occur in assessing a client’s business risk?
All of the above are equally likely to occur.
None
Which of the following statements is not correct with respect to analytical procedures?
Analytical procedures should be performed in every phase of the audit.
The purpose of the requirement in SAS No. 84 of having communication between the predecessor and successor auditor is
to help the successor auditor to evaluate whether to accept the engagement.
The predecessor auditor is required to respond to the request of the successor auditor for information, but the response can be limited to stating that no information will be provided when
there are legal problems between client and predecessor.
The engagement letter
can affect legal responsibilities to the client.
Which of the following is correct with respect to the use of analytical procedures?
None of the above is correct.
Which of the following statements is not correct?
Analytical procedures used in the completion phase are primarily aimed at assessing going concern and secondarily aimed at directing the auditor’s attention to areas that may contain possible misstatements.
Transactions with related parties are important to the auditors because they will be disclosed in the financial statements if material. Generally accepted accounting principles would not require disclosure of
loans to officers during the year which had been repaid before the balance sheet date.
Which of the following would not be classified as a related-party transaction?
An advance of one week’s salary to an employee.
Which of the following would not be found in the corporate charter?
The rules and procedures adopted by the stockholders.
Which of the following would you expect to find in a corporation’s bylaws?
The rules and procedures adopted by the stockholders of the corporation.
Which of the following would not usually be included in the minutes of the board of directors and/or stockholders?
The duties and powers of the corporate officers.
When are auditors likely to encounter judgment problems in the use of analytical procedures?
The auditor is likely to encounter judgment problems in each of the above instances.
The major concern when using nonfinancial data in analytical procedures is
the accuracy of the nonfinancial data.
An auditor searching for related party transactions should obtain an understanding of each subsidiary’s relationship to the total entity because
this may reveal whether transactions would have taken place if the parties had been unrelated.
A CPA is conducting the first examination of a non-public company’s financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor’s audit files. This procedure is
acceptable if the client and the predecessor auditor agree to it.
Early appointment of the independent auditor will enable
a more efficient examination to be planned.