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23 Cards in this Set
- Front
- Back
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Which of the following auditorconcerns most likely could be so serious that the auditor concludes that afinancial statement audit cannot be conducted? A. The entity has no formal written code ofconduct B. The integrity of entity's management issuspect C. Procedures requiring separation of duties aresubject to management override D. Management fails to modify prescribedcontrols for changes in conditions |
B. The integrity of entity's management is suspect |
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The successor auditor is not required to ask the predecessorauditor about A. Facts that mightbear on the integrity of management B. Disagreements thepredecessor may have had with management about accounting principles and auditprocedures C. The fees charged forthe previous audit D. The predecessor'sunderstanding about the reasons for the change of auditors |
C. The fees charged for the previous audit |
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Audit documentation does not normally include the A. Specificassertions under audit B. Industry accountingguides C. Record of theprocedures performed D. Decisions made inthe course of the audit |
B. Industry accounting guides |
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Which of the following provides the best method of obtaining anunderstanding of a continuing client's business for planning an audit? A. Performing testsof details of transactions and balances B. Reviewing prioryear audit documentation and the permanent file for the client C. Readingspecialized industry journals D. Reevaluating theclient's internal control environmentSL |
B. Reviewing prior year audit documentation and the permanent file for the client |
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Generally accepted auditing standards states that analyticalprocedures: A. Should be appliedin the planning and final review stages of the audit and as a substantive testduring the audit B. Should be appliedin the planning and final review stages of the audit and can be used as asubstantive test during the audit C. Should be appliedin the planning stage and can be applied as a substantive test and in the finalreview stage D. Should be appliedin the final review stage, and can be applied as a substantive test and in theplanning stage |
B. Should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit |
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Assume that application of analytical procedures revealedsignificant unexplained differences between recorded amounts and theexpectations (estimates) developed by the auditor. If management is unable toprovide an acceptable explanation, the auditor should A. Consider thematter a scope limitation B. Perform additionalaudit procedures to investigate the matter further C. Intensify theaudit with the expectation of detecting management fraud D. Withdraw from theengagement |
B. Perform additional audit procedures to investigate the matter further |
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Which of the following procedures would an auditor most likelyperform in planning a financial statement audit? A. Inquiring of theclient's legal counsel concerning pending litigation B. Comparing the financialstatements to anticipated results C. Examiningcomputer-generated exception reports to verify the effectiveness of internalcontrols D. Searching forunauthorized transactions that may aid in detecting unrecorded liabilities |
B. Comparing the financial statements to anticipated results |
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Analytical procedures used in planning an audit should focuson A. Reducing thescope of tests of controls and substantive tests B. Providingassurance that potential material misstatements will be identified C. Enhancing the auditor'sunderstanding of the client's business D. Assessing theadequacy of the available evidential matter |
C. Enhancing the auditor's understanding of the client's business |
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Horizontal analysis refersto A. The trend of income from year to year ofpersons suspected of fraud B. Changes of financial statement numbers and ratiosacross several years C. Financial statement amounts expressed eachyear as a proportion of a base amount D. The change in a suspect's net worth from thebeginning to the end of a periodions |
B. Changes of financial statement numbers and ratios across several years |
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During the course of an audit, the auditors required additionalresearch and consultation with specialists. This additional research andconsultation is considered to be A. An appropriatepart of the professional conduct of the engagement B. A responsibilityof the management, not the auditors C. A failure on thepart of the auditors to comply with GAAS because of a lack of competence D. An unusualpractice indicating that the auditors should not have accepted the engagement |
A. An appropriate part of the professional conduct of the engagement |
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This year, Blakeney Enterprises engaged a new auditor. The successorauditor must A. Attempt to communicatewith the predecessor auditor before accepting the engagement B. Review thepredecessor's audit documentation if the audit is to be in accordance with GAAS C. Seek the SEC'spermission to accept the engagement if Blakeney is publicly owned D. Reject theengagement if the change in auditors resulted from a dispute with thepredecessor |
A. Attempt to communicate with the predecessor auditor before accepting the engagement |
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Which of the following accounts tends to be most predictable forpurposes of analytical procedures? A. Accountsreceivable B. Travel andentertainment expense C. Interest expense D. Income taxespayable |
C. Interest expense |
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Banta, Brown, and Burgess, CPAs require that audit documentationcontain the initials of the preparer and the reviewer in the top right-handcorner. This procedure provides evidence of professional concern regardingwhich generally accepted auditing standard? A. Independence B. Adequatetechnical training and proficiencyC. Adequate planning andsupervisionD. Gatheringsufficient competent evidence |
C. Adequate planning and supervision |
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Prior to beginning the fieldworkon a new audit engagement in which the audit team does not possess expertise inthe industry in which the client operates, the audit team should A. Reduce audit risk by lowering the preliminarylevels of materiality B. Design special substantive tests tocompensate for the lack of industry expertise C. Engage financial experts familiar with thenature of the industry D. Obtain knowledge of matters that relate tothe nature of the entity's business |
D. Obtain knowledge of matters that relate to the nature of the entity's business |
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Analytical procedures areaudit methods of evaluating financial statement accounts by studying andcomparing relationships among financial and nonfinancial data. The primarypurpose of analytical procedures is to A. Identify the appropriate schedules to beprepared by the client B. Identify the types of errors or frauds thatcan occur in transactions C. Identify unusual conditions that deserveadditional audit effort D. Determine the existence of unrecordedliabilities or overstated assets |
C. Identify unusual conditions that deserve additional audit effort |
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Management's responsibility ina computer system would not include A. Ensuring the documentation of the system iscomplete and up to date B. Maintaining a system of transactionprocessing that includes an audit trail C. Assessment of the control risk D. Making computer resources and knowledgeablepersonnel available |
C. Assessment of the control risk |
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Which of the followingis not a category of audit documentation? A. Temporary files B. Permanent files C. Audit administrative files D. Current file documentation files |
A. Temporary files |
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Computer assisted audit techniques (CAATs) could not be used forwhich of the following audit task? A. Test calculationsand to make computations B. Evaluate control riskassessment C. Summarize,resequence, and reformat data D. Compare auditevidence from manual audit procedures to company needs |
B. Evaluate control risk assessment |
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Comparing data on separate files can be accomplished by computerassisted audit techniques (CAATs) to determine whether compatible informationis in agreement. Examples of such comparisons would not include A. Payroll detailswith personnel records B. Current and priorinventory to details of purchases and sales C. Paid vouchers todisbursements D. Observation ofinventory accounts |
D. Observation of inventory accounts |
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An auditor would least likely use computer software to A. Access clientdata files B. Preparespreadsheets C. Assessinformation systems control riskD. Constructparallel simulations |
C. Assess information systems control risk |
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For which of the following judgments may an independent auditorshare responsibility with an entity's internal auditor who is assessed to beboth competent and objective? A. Assessment ofinherent risk: Yes; Assessment of control risk: Yes B. Assessment ofinherent risk: Yes; Assessment of control risk: No C. Assessment ofinherent risk: No; Assessment of control risk: Yes D. Assessment of inherentrisk: No; Assessment of control risk: No |
D. Assessment of inherent risk: No; Assessment of control risk: No |
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. Jackson, CPA, audited Washington Company's financialstatements for the year ended December 31, 2007. On November 1, 2008, Washington notified Jacksonthat it was changing auditors and that Jackson'sservices were being terminated. On November 5, 2008, Washington invited Lincoln, CPA, to make aproposal for an engagement to audit its financial statements for the year endedDecember 31, 2008. Required:What procedures concerning Jackson should Lincoln perform beforeaccepting the engagement? |
1. Lincolnshould explain to Washington the need to makean inquiry of Jacksonand should request permission to do so. 2. Lincoln should ask Washingtonto authorize Jackson to respond fully to Lincoln's inquiries. 3. If Washington refuses to permit Jackson to respond or limits Jackson'sresponse, Lincolnshould inquire as to the reasons and consider the implications in decidingwhether to accept the engagement. 4. Lincoln should make specific and reasonable inquiries of Jackson regardingmatters Lincoln believes will assist in determining whether to accept theengagement, including specific questions regarding:A. Facts that might bear on the integrity of management;B. Disagreements with management as to accounting principles, audit procedures,or other similarly significant mattersC. Communications Jackson made to management about fraud, illegal acts, orinternal control recommendationsD. Jackson understands as to the reasons for the change of auditors. 5. If Lincoln receives a limited response, Lincoln should considerits implications in deciding whether to accept the engagement. |
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. This question tests your ability to perceive the place(s)where various potential problems may exist and the type of problem(overstatement or understatement) that may exist. It asks that you supply thewords or descriptions that complete the analyses begun by applying analyticalprocedures. Required:For each of the items below, identify the account(s) that need(s) to be auditedcarefully and the reason (i.e., potential overstatement or understatement of_______). A. If the current year accounts receivable are larger than last year but theallowance for doubtful accounts is the same B. If the current year inventory is larger than last year and the current yeargross margin (profit) is larger C. If current year long-term liabilities are larger than last year and theinterest expense is the same D. If current year fixed assets are larger and current depreciation expense isthe same as last year |
A. The collectibility of accountsreceivable is of concern. The allowance for doubtful accounts may beunderstated. The bad debt expense may be understated B. The existence of the inventory account is of concern. Inventory may beoverstated. Cost of goods sold may be understated C. The amount of accrued interest is of concern. Interest expense may beunderstated. Less likely, long-term liabilities could be overstated D. Depreciation expense and accumulated depreciation may be understated. It mayalso be possible that fixed assets are overstated |
