Quiz on Audit Engagement

Started:
Oct 11 at 8am

Quiz Instructions

Question 1 1 pts

Which of the following is least likely to be included in an auditor's inquiry of

management while obtaining information to identify the risks of material misstatement
due to fraud?

Has it reported to the audit committee the nature of the company's internal control

Does it have programs to mitigate fraud risks

Are all financial reporting operations at one location

Does it have knowledge of fraud or suspect fraud

Question 2 1 pts

Upon discovering material misstatements in a client’s financial statements that the

client would not revise, the auditor withdrew from the engagement. If asked by the
incoming auditor about the termination the engagement, the predecessor auditor
should

Indicate that the misunderstanding occurred

Suggest that the incoming auditor ask the clien

Suggest that the incoming auditor obtain the client’s permission to discuss the reasons

State that he found material misstatements that the client would not revise

Question 3 1 pts

Which of the following factors most likely would cause a CPA to not accept a new
audit engagement?

The prospective client is unwilling to make financial records available to the CPA

The prospective client has fired its prior auditor

The CPA lacks a thorough understanding of the prospective client's operations and industry

The CPA is unable to review the predecessor auditor's working papers

Question 4 1 pts

Which of the following factors would most likely cause a CPA to decide not to accept
a new audit engagement?

Management's attempt to meet earnings per share growth rate goals

Lack of understanding of the potential client's internal auditors' computer-assisted audit

techniques

Management's disregard for internal control

The existence of related party transactions

Question 5 1 pts

Which of the following is appropriately included in an audit engagement letter?

I. Because of the test nature and other inherent limitations of an audit, together with
the inherent limitations of any accounting and internal control system, there is an
unavoidable risk that even some material misstatements may remain undiscovered.

II. The audit will be made with the objective of expressing an opinion on the financial
statements.

III. An audit also includes assessing the accounting procedures used and significant
estimates made by management.

I, II and III

I and II

I and III

II and III

Question 6 1 pts

Communication with a predecessor auditor is initiated by

The audit committee of the board of directors

The successor auditor

Management

The chair of the board of directors

Question 7 1 pts

Among the possible reasons why an auditor will discontinue servicing an audit client
is

A change in the client management and the auditor is worried about the reputation of the
new management

The auditor has to use a specialist in verifying inventory valuation

Too many errors have to be adjusted to make the financial statements conform with PFRSs

The auditor is also rendering at the same time, a management advisory engagement for the
same client

Question 8 1 pts

Which of the following matters is generally included in an auditor's engagement

letter?

Factors to be considered in establishing preliminary judgments about materiality

Limitations of the engagement

The auditor's responsibility to obtain negative assurance relating to the occurrence of illegal
acts

Management's liability for illegal acts committed by its employees

Question 9 1 pts

Which of the following would be least likely to be considered an audit planning

procedure?

Perform the risk assessment

Use an engagement letter

Develop the audit plan

Develop the overall audit strategy

Question 10 1 pts
Which of the following procedures is not performed as a part of planning an audit
engagement?

Designing an strategy documents and audit program

Reviewing the working papers of the prior year

Confirmation of all major accounts

Performing analytical procedures

Question 11 1 pts

Which of the following professionals has primary responsibility for the performance of
an audit?

The managing partner of the firm

The senior assigned to the engagement

The manager assigned to the engagement

The partner in charge of the engagement

Question 12 1 pts

The independent auditors might consider the procedures performed by the internal
auditors because:

Their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations

They are employees whose work might affect the independent auditors' work

Their degree of independence may be inferred by the nature of their work

They are employees whose work must be reviewed during substantive testing

Question 13 1 pts

An auditor obtains knowledge about a new client's business and its industry in order
to

Develop an attitude of professional skepticism concerning management's financial statement

assertions

Understand the events and transactions that may have an effect on the client's financial
statements
 Make constructive suggestions concerning improvements to the client's internal control
structure

Evaluate whether the aggregation of known misstatements causes the financial statements
taken as a whole to be materially misstated

Question 14 1 pts

The development of a general strategy and a detailed approach for the expected
nature, timing,and extent of audit refers to :

Supervision

Planning

Directing

Audit procedures

Question 15 1 pts

The auditor should consider the nature, extent, and timing of the work to be
performed and should prepare a written audit program for every audit. Which audit
standard is most closely related to this requirement?

In all matters relating to the assignment, an independent mental attitude is to be maintained

by the auditor(s).

The audit is to be performed by a person or persons having adequate technical training and
proficiency as an auditor

Due professional care is to be exercised in the planning and performance of the audit and
preparation of the report

The work is to be adequately planned and assistants, if any, are to be properly supervised

Question 16 1 pts

Which of the following would a successor auditor normally perform after acceptance
of an audit client?

Inquiry of predecessor auditor regarding the client

Review the SEC filings of the client. c. Inquiry of bankers regarding the client

Review of predecessor auditor working papers

 Inquiry of bankers regarding the client

Question 17 1 pts

To obtain an understanding of a continuing client’s business in planning an audit, an

auditor most likely would

Review prior-year working papers and the permanent file for the client

Perform tests of details of transactions and balances

Read specialized industry journals

Reevaluate client’s internal control environment

Question 18 1 pts

Which of the following is required documentation in an audit in accordance with

generally accepted auditing standards?

A planning memorandum establishing the timing of the audit procedures and coordinating
the assistance of entity personnel

An audit program setting forth in detail the procedures necessary to accomplish the
engagement’s objectives

An internal control questionnaire identifying policies and procedures that assure specific
objectives will be achieved

A flowchart or narrative of the information system describing the recording and classification
of transactions for financial reporting

Question 19 1 pts

Which of the following procedures would an auditor most likely perform in planning a
financial statement audit?

Comparing the financial statements to anticipated results

Searching for unauthorized transactions that may aid in detecting unrecorded liabilities

Inquiring of the client’s legal counsel concerning pending litigation

Examining computer generated exception reports to verify the effectiveness of internal

controls
Question 20 1 pts

Analytical procedures used in planning an audit should focus on

Providing assurance that potential material misstatements will be identified

Reducing the scope of tests of controls and substantive tests

Assessing the adequacy of the available evidential matter

Enhancing the auditor’s understanding of the client’s business

Question 21 1 pts

Analytical procedures, which means the analysis of significant ratios and trends
including the resulting investigation of fluctuations and relationships that are
inconsistent with other relevant information or which deviate from predicted amounts,
are not required to be applied

None of the above

Overall review stage of the audit

At the planning stage of the audit

As substantive procedures

Question 22 1 pts

Which of the following statements is correct concerning analytical procedures?

Analytical procedures are more efficient, but not more effective, than tests of details and
transactions

Analytical procedures can replace tests of controls in gathering evidence to support the
assessed level of control risk

Analytical procedures usually involve comparisons of ratios developed from recorded

amounts to assertions developed by management

Analytical procedures used in planning an audit generally use data aggregated at a high
level

Question 23 1 pts
Which of the following is an effective audit planning and control procedures that helps
prevent misunderstandings and inefficient use of audit personnel?

Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and
other information

Arrange to have the auditor prepare and post any necessary adjusting or reclassification
entries prior to final closing

Provide the client with copies of the audit programs to be used during the audit

Make copies, for inclusion in the working papers, of those client supporting documents
examined by the auditor

Question 24 1 pts

Which of the following is an aspect of scheduling and controlling the audit

engagement?

Writing a conclusion in individual working papers indicating how the results of the audit will
affect the auditor’s report

Performing audit work only after the client’s books of account have been closed for the
period under examination

Including in the audit program a column for estimated and actual time

Including in the engagement letter an estimate of the minimum and maximum audit fee

Question 25 1 pts

Which of the following is an engagement attribute for an audit of an entity that

processes most of its financial data in electronic form without any paper
documentation?

Increased effort to search for evidence of management fraud

Increased emphasis on the completeness assertion

Discrete phases of planning, interim, and year-end field work

Performance of audit tests on a continuous basis

Question 26 1 pts

Which of the following statements is not correct about materiality?

 The concept of materiality recognizes that some matters are important for fair presentation of
financial statements in conformity with GAAP, while other matters are not important

An auditor considers materiality for planning purposes in terms of the largest aggregate level
of misstatements that could be material to any one of the financial statements

Materiality judgments are made in light of surrounding circumstances and necessarily involve
both quantitative and qualitative judgments

An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs

of a reasonable person who will rely on the financial statements

Question 27 1 pts

The risk that the assertion contains material misstatements that, when aggregated
with misstatements in other assertions, could make the entire financial statements
materially misstated is:

Individual audit risk

Control risk

Detection risk

Inherent risk

Question 28 1 pts

Incremental risk is the increased risk that errors may not be detected at the balance
sheet date because:

Inherent risk was assessed too low

Audit procedures were performed at an interim date

Analytical procedures were not performed

Detection risk was set too high a level

Question 29 1 pts

Adequate planning of the audit work helps the auditor of accomplishing the following
objectives, except:

Gathering of all corroborating audit evidence

Ensuring that appropriate attention is devoted to important areas of the audit

 The audit work is completed efficiently

Identifying the areas that need a service of an expert

Question 30 1 pts

The extent of planning will vary according to any of the following, except:

Size of the audit client

Auditor’s experience with the entity and knowledge of the business

The assessed level of control risk

The nature and complexity of the audit engagement

Question 31 1 pts

Which of the following is least likely considered by the auditor in developing the
overall audit plan?

Relevant risk and materiality

The general level of competence of audit assistants

The involvement of other auditors in the audit of major component of financial statements

Understanding of the accounting and internal control systems

Question 32 1 pts

Which of the following is not considered by the CPA when he makes an overall audit
plan?

The information technology used by the client

The content of the representation letters

The nature and timing of reports or other communication with the entity that are expected
under the engagement

Identification of complex accounting areas including those involving accounting estimates

Question 33 1 pts
Audit plan should:

Precede action
Be fixed
Be cost beneficial

No Yes Yes

Yes Yes Yes

Yes Yes No

Yes No Yes

Question 34 1 pts

Which of the following least likely affect the form and content of the overall audit
plan?

Methodology and technology used by the auditor

The entity’s form of business organization

Complexity of the audit engagement

The size of the entity

Question 35 1 pts

The audit program should contain the following, except:

The combined assessed level of inherent and control risk

Set of planned audit procedures

Audit objective

Time budget for the various audit areas

Question 36 1 pts

Which of the following will most likely help the auditor to identify and understand the
events, transactions and practices of his audit client?

Understanding of accounting and internal control

 Obtaining a sufficient knowledge of the business of his client

Obtaining a representation letter from the client management

Testing control policies and procedures

Question 37 1 pts

The auditor should have or obtain a knowledge of the client’s business sufficient to:

Have an overall evaluation of whether financial assertions are fairly presented in the financial
statements

Identify and understand events, transactions and practices that may have effect on financial
statements

Evaluate whether the financial statements are materially misstated

Document material weaknesses in accounting and internal control systems

Question 38 1 pts

The auditor is not expected to have

A particular knowledge of how the entity operates

A particular knowledge of the economy and the industry within which the entity operates

A knowledge of business which is used in assessing inherent and control risk

. A level of knowledge of business ordinarily less than that possessed by management

Question 39 1 pts

The auditor obtains knowledge of client’s business

Prior to acceptance of engagement

Planning stage of the audit
Testing of transactions

Yes Yes No

No Yes Yes

Yes Yes Yes

Yes No Yes
Question 40 1 pts

Understanding the business and using this information appropriately assists the
auditor in, except

Planning and performing the audit effectively and efficiently

Deciding whether to do tests of controls

Evaluating audit evidence

Assessing risks and identifying potential problems

Question 41 1 pts

Which of the following is the ultimate concern of the knowledge about the business?

It assists in determining the type of audit report to be issued

To assure that sufficient audit evidence is obtained

Consideration of how it affects the financial statements taken as a whole

Assists the auditor in enforcing quality control procedures

Question 42 1 pts

A knowledge of the business is a frame of reference within which the auditor

exercises professional judgment. This assists the auditor in carrying out the following
objectives, except:

Planning and performing the audit effectively and efficiently

Assessing risks and identifying problems

Determining the audit opinion to be expressed

Evaluating audit evidence

Question 43 1 pts
Throughout the course of the audit, the auditors make judgment about many matters
where knowledge of the business is important. These procedures do not include:

Identifying related parties and related party transactions

Assessing the appropriateness of using statistical sampling instead of judgmental sampling

Assessing inherent and control risks

Evaluating accounting estimates and management representations

Question 44 1 pts

Which of the following factors is inappropriately relevant to the management’s

assessment of the going concern assumption?

The degree of uncertainty associated with the outcome of an event or condition decreases
significantly the further into the future of judgment being made about the outcome of an
event or condition

Subsequent events can contradict a judgment which was reasonable at the time it was made

The size and complexity of the entity, and the nature and conditions of its business affect the
judgment regarding the outcome of events or conditions

Any judgment about the future is based on information available at the time at which the
judgment is made

Question 45 1 pts

Which of the following may not cast significant doubt about the going concern
assumption of an entity

Changes in legislation or government policy expected to adversely affect the entity

Pending legal or regulatory proceeding against the entity that may, if successful, result in
claims that are unlikely to be satisfied

Non-compliance with capital or other statutory requirements

The entity heavily used equity financing for investment in permanent assets

Question 46 1 pts

When events or conditions have been identified which may cast significant doubt on
the entity’s ability to continue as a going concern, the auditor should:
 Gather sufficient appropriate audit evidence to confirm or dispel whether or not a material
uncertainty exists through carrying out procedures considered necessary, including
considering the effect of any plans of management and other mitigating factors.

All of the above

Review management’s plans for future actions based on its going concern assessment

Seek written representations from management regarding its plans for future action

Question 47 1 pts

Which of the following proposed actions may mostly mitigate the going concern
problem of an entity?

Rescheduling of loan payments

Increasing the amount of cash dividends to be paid

Acquiring asset replacement using short-term loans

More vigorous business expansion

Question 48 1 pts

The following are related to the auditor’s responsibility to assess the ability of the
company to continue as a going concern:

I. The auditor should consider the appropriateness of the management’s use of the
going concern assumption in the preparation of the financial statements.

II.  The auditor is to consider whether there are material uncertainties about the
entity’s ability to continue as a going concern that needs to be disclosed in the
financial statements.

III. The absence of any reference to going concern uncertainty in the auditor’s report
is viewed as a guarantee as to the entity’s ability to continue as a going concern.

Which of the foregoing inappropriately describe(s) the auditor’s responsibility?

III only

I only

. II only

I and II
Question 49 1 pts

The auditor consider events and condition relating to the going concern assumption
during the planning stage in order to:

To have a timely discussion with management and a review of management’s plans and
resolutions of any identified going concern issues

Identifying the areas of accounting and internal control systems that need tests of control

In order to shorten assessment period

Help management do action that may mitigate its going concern problems

Question 50 1 pts

If adequate disclosure is not made by the entity regarding substantial doubt about its
ability to continue as a going concern, the auditor should include in his report specific
reference to the substantial doubt as to ability of the company to continue as a going
concern and should express:

A disclaimer of opinion

A subject to qualified opinion or adverse opinion

Either an “except for” qualified opinion or an adverse opinion

Unqualified opinion with explanatory paragraph

Question 51 1 pts

If the auditor believes that the entity will not be able to continue as a going concern
and the financial statements are prepared on a going concern basis, the auditor’s
report should include:

Disclaimer of opinion

Unqualified opinion with explanatory paragraph.

Qualified opinion

Adverse opinion

Question 52 1 pts
If the auditor believes that management should extend its assessment but the latter
refuses to do so, the auditor should:

Extend his audit procedures to obtain sufficiently appropriate evidence regarding the use of
the going concern assumption

Rectify the lack of analysis by management

Consider a modification of the report as a result of the limitation in the scope of the auditor’s
work

Emphasize this matter in the audit report

Question 53 1 pts

The management denied the auditor’s request that the management has to extend its
assessment of its going concern ability. However, the auditor’s other procedures are
sufficient to assess the appropriateness of management use of the going concern
assumption in the preparation of the financial statements. he auditor should issue:

Disclaimer of opinion

Adverse opinion

Unqualified opinion with explanatory paragraph

Unqualified opinion

Question 54 1 pts

Upon discovering material misstatements in a client’s financial statements that the

client would not revise, the auditor withdrew from the engagement. If asked by the
incoming auditor about the termination the engagement, the predecessor auditor
should

State that he found material misstatements that the client would not revise

Suggest that the incoming auditor obtain the client’s permission to discuss the reasons

Suggest that the incoming auditor ask the client

Indicate that the misunderstanding occurred

Question 55 1 pts
The development of a general strategy and a detailed approach for the expected
nature, timing,and extent of audit refers to:

Directing

Audit procedures

Supervision

Planning

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