AUD 3 - Engagement Acceptance, Planning, and Risk Assessment

Question 1

During the initial planning phase of an audit, the auditor would most likely discuss the timing of what with the client’s management?

Answer 1

Audit procedures

Question 2

Who selects and appoints the independent external auditor?

Answer 2

Audit committee

Question 3

SOX generally applies to whom?

Answer 3

Issuers

Question 4

If the client is an issuer, then the auditor must perform what type of audit on the client’s FS and ICFR?

Answer 4

Integrated audit

Question 5

A precondition for an audit is that the auditor should obtain the agreement of management that it acknowledges and understands its responsibility for what?

Answer 5

F/S and Internal Controls

Question 6

The auditor should not accept an engagement if prior to the engagement acceptance, management imposes a scope limitation that will result in the auditor issuing what sort of opinion on the F/S as a whole?

Answer 6

Disclaimer of opinion

Question 7

If the audit is required by law or regulation and a disclaimer is acceptance, is the auditor permitted to accept the engagement?

Answer 7

YES

EXPLANATION: The auditor is permitted but not required to accept. An example of such an audit is that of an employee benefit plan.

Question 8

What type of scope limitations do not preclude engagement acceptance?

Answer 8

Auditor may still accept engagement:

• Management imposed scope limit that will result in a qualified opinion
• Scope limit is imposed by circumstances beyond management’s control

Question 9

Is a lack of records considered a scope limitation?

Answer 9

YES

Question 10

Engagement letter = signed ________

Answer 10

agreement

Question 11

The engagement letter should be provided to the audit committee ________.

Answer 11

annually

Question 12

What is defined as an audit engagement for an existing audit client for whom the auditor performed the preceding audit?

Answer 12

Recurring audit

Question 13

What is defined as an engagement in which the f/s for the prior period were not audited or were audited by a predecessor auditor?

Answer 13

Initial audit

Question 14

In an initial audit, the auditor is required to talk to whom before engagement acceptance?

Answer 14

Talk with predecessor auditor

Question 15

Is client permission needed before communicating with the predecessor auditor before engagement acceptance?

Answer 15

Yes

EXPLANATION: If the client is unwilling to agree to this procedure, the auditor should consider the implications and decide whether to accept the engagement.

Question 16

Does the audit strategy stay constant throughout the audit?

Answer 16

No

EXPLANATION: The auditor should be prepared to revise the audit strategy and the audit plan based on the results of audit procedures.

Question 17

What three things is the engagement partner responsible for?

Answer 17

1) Planning the audit
2) Supervising the work of engagement team members
3) Compliance w/ relevant auditing standards

Question 18

Once the engagement has been accepted, the auditor must obtain an understanding of the client’s _______ and ________.

Answer 18

Industry and business

Question 19

Name a common source of industry info.

Answer 19

• AICPA accounting and audit guides
• trade publications and professional trade associations
• government publications
• AICPA Accounting Trends and Techniques

Question 20

The overall audit strategy has to be in _______.

Answer 20

Writing

Question 21

One factor that determines the focus of the audit team’s efforts include preliminary evaluations of what?

Answer 21

• Material
• Audit risk
• Internal control

Question 22

A written audit plan (i.e. documentation of specific audit procedures) is ______.

Answer 22

Required

Question 23

Are risk assessment procedures required in all financial statement audits?

Answer 23

YES

Question 24

What is the mnemonic for the six main f/s assertions?

Answer 24

COVER U

Question 25

What is the mnemonic for the f/s assertions according to PCAOB standards?

Answer 25

CEO APROVED

Question 26

What are the f/s assertions according to PCAOB standards?

Answer 26

CEO APROVED

Completeness
Existence
Occurence

Allocation
Presentation
Obligations
Valuation
E
Disclosure

Question 27

What are the six main f/s assertions?

Answer 27

COVER U

Completeness
CutOff
Valuation, Allocation, and Accuracy
Existence and Occurrence
Rights and Obligations

Understandability and Classification

Question 28

Objectivity of the internal auditor is reflected by what?

Answer 28

Organizational level to which the internal auditor reports