Chapter 3 Flashcards
Additional Practice
Which of the following would be considered an analytical procedure?
Comparing inventory balances to recent sales activities
Which of the following procedures would a CPA most likely perform in planning a financial statement audit?
Compare financial information with nonfinancial operating data.
Which of the following statements is correct concerning analytical procedures used in planning an audit engagement?
They typically use financial and nonfinancial data aggregated at a high level. The use of financial and nonfinancial data aggregated at a high level is commonly used during preliminary analytical procedures.
The company being audited has an internal auditor who is both competent and objective. The independent auditor wants to assign tasks for the internal auditor to perform. Under these circumstances, the independent auditor may:
allow the internal auditor to perform certain tests of internal controls.
Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?
There will be a client-imposed scope limitation.
This is a major risk factor and is likely to be enough for an auditor to not accept an audit engagement.
With respect to the concept of materiality, which of the following statements is correct?
Materiality is a matter of professional judgment.
Audit planning memorandum. Permanent or current year file?
Current year file
Client organizational chart. Permanent or current year file?
Permanent file
Prior years’ financial statements and audit reports. Permanent or current year file?
Permanent file
Engagement letter. Permanent or current year file?
Current year file
Bank confirmations. Permanent or current year file?
Current year file
Schedule for current year depreciation calculation. Permanent or current year file?
Current year file
Royalty agreements. Permanent or current year file?
Permanent file
Which of the following is not done during the client acceptance and retention phase of planning?
Obtain an understanding of the internal control system.
Which of the following is not included in the engagement letter?
Representations that the financial statements were prepared in accordance with generally accepted accounting principles.
In deciding whether to use the work of internal auditors, external auditors must evaluate the internal auditors’
objectivity and competence.
Which of the following is not a goal of audit planning?
To gain preliminary insight on the outcome of the audit.
For which of the following judgments may an independent external auditor share responsibility with an entity’s internal auditor who already has been assessed to be both competent and objective?
Assessment of inherent risk No. Assessment of control risk No. Judgments such as assessment of inherent and control risk should not be shared with the client’s internal auditors.
In testing the existence assertion for an asset, an auditor ordinarily works from the
accounting records to the supporting evidence. The auditor would be testing whether the recorded items really exist.
In the preparation of an audit program, which of the following items is not essential?
The preparation of a detailed time budget identifying the costs of resources needed.
The audit team would typically not rely on the budget in its determination of appropriate audit procedures.
All of the following are qualitative factors to consider when evaluating materiality except:
the dollar amount of the misstatement.
Inspection of tangible assets provides evidence for which financial statement assertion?
Existence
In testing the completeness assertion for a liability, an auditor ordinarily works from the
potentially unrecorded items to the financial statements.
This is a tracing procedure which would test for completeness.
