Chapter 5

Front 1

*

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

Back 1

The auditor should obtain an understanding of the methods and assumptions used by the speialist

Front 2

*

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

Back 2

Auditor's report contains a qualified opinion.

Front 3

*

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

Back 3

Internal auditor.

Front 4

*

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

Back 4

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

Front 5

*

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

Back 5

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

Front 6

*

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

Back 6

Inquire about the existence of related parties from management.

Front 7

*

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

Back 7

A sale to another corporation with a similar name.

Front 8

*

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

Back 8

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

Front 9

*

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

Back 9

Evaluate the business purpose of the transaction.

Front 10

*

Ajax, Inc., is an affiliate of the audit client and is audited by another firm of audidtors. 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?

Back 10

Review client minutes and obtain a representation letter.

Front 11

In the absence of evidence to the contrary, transactions with related parties should not be assumed to be outside the normal course of business. The auditor should, however, be aware of the possibility that transactions with related parties may have been motivated solely or in large part by extraordinary conditions. Which of the following is not normally a condition motivating a transaction outside the normal course of business?

Back 11

Mutual benefit to both Parties.

Front 12

*

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

Back 12

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

Front 13

*

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

Back 13

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

Front 14

Disclosure in financial statements of a reporting entity that has participated in related party transactions that are material, individually or in the aggregae, should include all of the following except

Back 14

A statement that the transactions would have occurred regardless of whether the parties were related.

Front 15

*

When auditing related party transactions, an auditor places primary emphasis on

Back 15

Assessing the risks of material misstatement of related party transactions.

Front 16

When one party can significantly influence the management or operating policies of the other to the extent that one of the transacting parties might be prevented from fully pursuing its separate interests, the parties are related for purposes of AU-C 550. Which of the following is not usually regarded as a party related to an entity?

Back 16

The U.S. government.

Front 17

Which of the following is an unusual procedure that may be deemed necessary to discover the effect of a related party transaction?

Back 17

Confirm significant information with third parties other than banks or attorneys.

Front 18

U.S. GAAP ordinarily require material related party transactions to be

Back 18

Separately disclosed but not accounted for differently from transactions between unrelated parties.

Front 19

*

Which of the following procedures would an auditor ordinarily perform first in evaluating the reasonableness of management's accounting estimates?

Back 19

Obtain an understanding of how management makes its estimates.

Front 20

*

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?

Back 20

Review the lawyer's letter for information about litigation.

Front 21

As part of the audit of fair value estimates and disclosures, an auditor may need to test the entity's significant assumptions. In these circumstances, the auditor should

Back 21

Evaluate whether the assumptions individually and as a whole form a reasonable basis for the fair value estimates.

Front 22

During the audit of fair value estimates and disclosures, the auditor most likely should

Back 22

Use the understanding of the audited entity's process for determining fair value estimates to assess the risks of material misstatement.

Front 23

The client has equity securities classified as available for sale. The auditor is most concerned about controls related to

Back 23

The determination of the fair value measurements of the securities.

Front 24

Which of the following is a false statement about the relationship of financial statement assertions and audit procedures?

Back 24

The relationship between financial statement assertions and audit procedures should be one-to-one.

Front 25

*

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

Back 25

Obtaining and evaluating audit evidence.

Front 26

*

Which of the following statements about audit evidence is true?

Back 26

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

Front 27

*

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

Back 27

Transactions.

Front 28

The appropriateness of evidence available to an auditor is least likely to be affected by the

Back 28

Sampling method employed by the auditor to obtain a sample of such evidence.

Front 29

In gathering evidence in the performance of substantive procedures, the auditor most likely

Back 29

Relies on persuasive rather than conclusive evidence in the majority of cases.

Front 30

AU-C 500 describes five generalizations about the reliability of evidence. The situations given below indicate the relative degrees of assurance provided by two types of evidence obtained in different situations. Which describes an exception to one of the generalizations?

Back 30

The report of an auditor's specialist regarding the valuation of a collection of paintings held as an investment provides greater assurance than the auditor's physical observation of the paintings.

Front 31

* Which of the following statements about evidence is true?

Back 31

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

Front 32

The most reliable forms of documentary evidence are those documents that are

Back 32

Authorized by a responsible official.

Front 33

*

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

Back 33

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

Front 34

Observation is considered a reliable audit procedure but one that is limited in usefulness. However, it is used in a number of different audit situations. Which of the following statments is true regarding observation as an audit technique?

Back 34

It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place.

Front 35

*

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

Back 35

Search for unrecorded cash receipts.

Front 36

*

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

Back 36

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

Front 37

*

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?

Back 37

Auditor judgment.

Front 38

You have been assigned to audit the maintenance department of an organization. Which of the following is likely to produce the least reliable audit evidence?

Back 38

Notes on discussions with mechanics in the maintenance operation.

Front 39

If an auditor conducts an audit of financial statements in accordance with applicable auditing standards, which of the following will the auditor most likely detect?

Back 39

Misposting of recorded transactions.

Front 40

*

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

Back 40

Difficulty and cost involved in testing a particular item.

Front 41

*

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

Back 41

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

Front 42

*

A client uses 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

Back 42

Suspense debits that management believes will benefit future operations.

Front 43

*

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

Back 43

Designed to meet the circumstances of the particular engagement.

Front 44

*

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

Back 44

Client's schedules were prepared.

Front 45

*

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

Back 45

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

Front 46

The PCAOB's AS No. 3, Audit Documentation, requires that a complete and final set of audit documentation be assembled for rtention as of a date not more than 45 daysafter the audit report release date. After that date, audit documentation may

Back 46

Be added, but no audit documentation may be deleted or discarded.

Front 47

Standardized working papers are often used, chiefly because they allow audit documentation to be prepared more

Back 47

Efficiently.

Front 48

*

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

Back 48

A summary of how significant findings were addressed.

Front 49

*

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

Back 49

Analyses of capital stock and other equity accounts.

Front 50

Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to

Back 50

Permit cross-referencing and simplify supervisory review.

Front 51

*

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

Back 51

Lead schedule.

Front 52

*

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

Back 52

Reclassifications and adjustments.

Front 53

*

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

Back 53

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

Front 54

*

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

Back 54

Audit documentaiton may not contain readily observable details of calculations.

Front 55

*

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

Back 55

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

Front 56

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

Back 56

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

Front 57

*

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

Back 57

Analysis of income statement accounts.

Front 58

*

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

Back 58

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

Front 59

*

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

Back 59

Sufficient and appropriate documentation should include evidence that it has been reviewed.