Chapter 3

Question 1

to identify the risks of material misstatements at both the financial statement and management assertion levels

Answer 1

Primary reason for engagement planning

Question 2

obtaining and reviewing financial information about the prospective client: annual reports, interim statements, registration statements, Form 10-Ks, and reports to regulatory agencies

Answer 2

sources of information auditors can use in connection with deciding whether to accept a new client

Question 3

acquiring detailed criminal background checks of senior managers

Answer 3

sources of information auditors can use in connection with deciding whether to accept a new client

Question 4

inquiring of the prospective client’s bankers, legal counsel, underwriters, analysts, or other persons who do business with the entity for information about it and its management

Answer 4

sources of information auditors can use in connection with deciding whether to accept a new client

Question 5

considering whether the engagement would require special attention or involve unusual risks to the public accounting firm

Answer 5

sources of information auditors can use in connection with deciding whether to accept a new client

Question 6

evaluating the public accounting firm’s independence with regard to the prospective client

Answer 6

sources of information auditors can use in connection with deciding whether to accept a new client

Question 7

considering the need for individuals possessing special skills or knowledge to complete the audit (e.g., IT auditor, valuation specialist, industry specialist)

Answer 7

sources of information auditors can use in connection with deciding whether to accept a new client

Question 8

the firms should also search for news articles, lawsuits, and bankruptcy outcomes naming the entity, the chairman of the board, the CEO, the CFO, and other high-ranking officers

Answer 8

sources of information auditors can use in connection with deciding whether to accept a new client

Question 9

“state of mind” allowing an auditor to form an opinion unbiased

Answer 9

Independence in fact

Question 10

relates to other perception of auditors independence

Answer 10

Independence in appearance