Chapter 4 [Salosagcol] Flashcards by Stussy Aubrey

The objective of the ordinary audit of financial statements is the expression of an opinion on

a. The fairness of the financial statements in all material respects
b. The accuracy of the financial statements
c. The accuracy of the annual report
d. The accuracy of the statement of financial position and the statement of comprehensive income

How well did you know this?

Not at all

Perfectly

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to

a. The auditor
b. The management
c. Both management and the auditor equally
d. Management for the statements and the auditor for the notes

How well did you know this?

Not at all

Perfectly

Auditors accumulate evidence to

a. Defend themselves in the event of a lawsuit
b. Justify the conclusions they have otherwise reached
c. Satisfy the requirements of the SEC
d. Enable them to reach conclusions about the fairness of the financial statements

How well did you know this?

Not at all

Perfectly

Management representations that are embodied in the account balance, transaction class, and disclosure components of financial statements. They include existence or occurrence, completeness, rights and obligations, valuation or allocations, and presentation and disclosures

a. Management representation letter
b. Management responsibility statement
c. Accounting policies
d. Assertions

How well did you know this?

Not at all

Perfectly

Management assertions are

a. Directly related to the PFRS
b. Stated in the notes to the financial statements
c. Explicitly expressed representations about the company’s financial condition
d. Provided to the auditor in the assertion letter, but are not disclosed in the financial statements

How well did you know this?

Not at all

Perfectly

Management assertions are

a. Implied or expressed representations about classes of transactions and the related accounts in the financial statements
b. Stated in the footnotes to the financial statements
c. Explicitly expressed representations about the financial statements
d. Provided to the auditor in the assertions letter, but are not disclosed on the financial statements

How well did you know this?

Not at all

Perfectly

Which of the following statements is true?

a. The auditor’s objectives follow and are closely related to management assertions
b. Management assertions follow and are closely related to the auditor’s objectives
c. The auditor’s responsibility is to find and disclose fraudulent assertions
d. Assertions about presentation and disclosure deal with whether the accounts have been included in the financial statements at appropriate amounts

How well did you know this?

Not at all

Perfectly

Which of the following statements is true?

a. The evidence which the auditor accumulates remains the same from audit to audit, but the audit objectives vary, depending on the circumstances
b. The audit objectives remain the same from audit to audit, but the evidence varies, depending on the circumstances
c. The circumstances may vary from audit to audit, but the evidence accumulated remains the same
d. The audit objectives may vary from audit to audit but the circumstances remain the same

How well did you know this?

Not at all

Perfectly

Substantive procedures are designed to obtain evidence based on the representations of client’s management as embodied in the financial statement components, EXCEPT:

a. Completeness
b. Existence
c. Valuation
d. Legality

How well did you know this?

Not at all

Perfectly

Which of the following is not a management assertion?

a. Obligations classified as long-term liabilities in the statement of financial position will not mature within one year
b. Property is recorded at historical cost and such cost is systematically allocated to appropriate accounting periods
c. Finished goods inventory in the statement of financial position are available for sale
d. Net income reflects the earning power of the enterprise

How well did you know this?

Not at all

Perfectly

Which of the following is an example of an assertion made by management in an entity’s financial statements?

a. The financial statements were prepared in an unbiased manner
b. Reported inventory balances reflect all related transactions for the period
c. Reported accounts receivable do not include any uncollectible accounts
d. The scope of the auditor’s investigations was not limited in any way by management

How well did you know this?

Not at all

Perfectly

Which of the following is not one of the five broad categories of management assertions?

a. General or specific transaction objectives
b. Existence or occurrence
c. Valuation or allocation
d. Presentation and disclosure

How well did you know this?

Not at all

Perfectly

This assertion addresses whether all transactions that should be included in the financial statements are in fact included

a. Occurrence
b. Completeness
c. Rights and obligations
d. Existence

How well did you know this?

Not at all

Perfectly

Which of the following assertions does not relate to balances at period end?

a. Existence
b. Occurrence
c. Valuation or Allocation
d. Rights and Obligation

How well did you know this?

Not at all

Perfectly

Which of the following statements is correct?

a. Existence relates to whether the amounts in accounts are understated
b. Completeness relates to whether balances exist
c. Existence relates to whether balances are valid
d. Occurrence relates to whether the amounts in accounts occurred in the proper year

How well did you know this?

Not at all

Perfectly

Which of the following statements is not correct?

a. There are many ways an auditor can accumulate evidence to meet the overall audit objectives
b. Sufficient appropriate evidence must be accumulated to meet the auditor’s professional responsibility
c. The cost of accumulating the evidence should be minimized
d. Gathering evidence and minimizing costs are equally important considerations that affect the approach the auditor selects

How well did you know this?

Not at all

Perfectly

Assertions are representations by management that are embodied in financial statement components. An example of an assertion about existence is whether

a. All sales transactions for the period are included in the income statement
b. Capitalized leased property in the statement of financial position represents the cost of the company’s right to the leased asset
c. Raw materials in the statement of financial position are available for use in production
d. Receivable in the financial statement are stated at amortized cost

How well did you know this?

Not at all

Perfectly

“That investment in equity securities are stated at fair value” is a management assertion as to

a. Existence
b. Completeness
c. Valuation
d. Rights and obligation

How well did you know this?

Not at all

Perfectly

“That the company has rights over all its property and equipment” is a management assertion as to

a. Existence
b. Completeness
c. Valuation
d. Rights and obligation

How well did you know this?

Not at all

Perfectly

In auditing intangible assets, an auditor most likely would review or re-compute amortization and determine whether amortization period is reasonable in support management’s financial statement assertion of

a. Existence
b. Completeness
c. Valuation
d. Rights and obligation

How well did you know this?

Not at all

Perfectly

Which of the following would most likely would give the most assurance concerning the valuation assertions of accounts receivable?

a. Tracing amounts in the subsidiary ledger to details on shipping documents
b. Comparing receivables turnover ratios to industry statistics for reasonableness
c. Inquiring about receivables pledged under loan agreement
d. Assessing the allowance for credit losses account for reasonableness

How well did you know this?

Not at all

Perfectly

Which of the following statements is not correct?

a. It would be a violation of the completeness assertion if management would record a sale that did not take place
b. The completeness assertion deals with matters opposite from those of existence/occurrence assertion
c. The completeness assertion is concerned with possibility of omitting items from the financial statements that should have been included
d. The existence/occurrence assertion is concerned with inclusion of the amount that should not have been

How well did you know this?

Not at all

Perfectly

The financial statement assertions of existence and completeness emphasize opposite audit concerns

a. Existence deals with potential overstatement and completeness deals with understatement
b. Existence deals with potential understatement
and completeness deals with overstatement
c. Existence and completeness may each deal with overstatements and understatements but not in the same transaction
d. Existence always deals with overstatements but completeness may deal with either over or understatements

How well did you know this?

Not at all

Perfectly

Which of the following statements is not true?

a. An example of a completeness assertion would be that note payable in the statement of financial position includes all such obligations of the entity
b. An example of an existence/occurrence assertion would be that sales in the income statement represent exchanges of goods or services that actually took place
c. An example of rights/obligations assertion would be that amount capitalized for leases in the statement of financial position represent the cost of the entity’s rights to leased property
d. An example of a presentation/disclosure assertion would be that investment property is reported at fair value

How well did you know this?

Not at all

Perfectly

An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of a. Presentation and disclosure b. Valuation or allocation c. Existence or occurrence d. Completeness

Confirmation of accounts receivable is a procedure that would most likely obtain evidence concerning management's assertion of a. Presentation and disclosure b. Valuation or allocation c. Existence or occurrence d. Completeness

In testing for cut-off, the objective is to determine a. Whether all of the current period's transactions are recorded b. That no transactions from the prior period are included in the current period's balances c. That no transactions of the current period have been delayed and recorded in the subsequent period d. Whether transactions are recorded in the proper period

An auditor would most likely make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of a. Presentation and disclosure b. Valuation or allocation c. Existence or occurrence d. Completeness

During an audit of an entity's stockholders' equity, the audit determines whether there are restrictions on retained earnings resulting from loan agreements. This audit procedure most likely is intended to verify management's assertion of a. Presentation and disclosure b. Valuation or allocation c. Existence or occurrence d. Completeness

Computation of receivable and inventory turnover satisfies the audit objective of a. Presentation and disclosure b. Valuation or allocation c. Existence or occurrence d. Completeness

An auditor would most likely review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's assertion of a. Presentation and disclosure b. Valuation or allocation c. Existence or occurrence d. Completeness

In determining whether transactions have been recorded, the direction of the test would be from a. General ledger b. Source documents c. Trial balance d. General journal

In testing the existence assertion for an asset, an auditor ordinarily works from the a. Financial statements to potentially unrecorded items b. Potentially unrecorded items to the financial statements c. Supporting evidence to accounting records d. Accounting records to supporting evidence

When the auditor examines the client's documents and records to substantiate information on the financial statements, it is commonly referred to as a. Inquiry b. Confirmation c. Vouching d. Physical examination

When the auditor uses tracing as an audit procedure for tests of transactions, the auditor is primarily concerned with which audit objective? a. Occurrence b. Completeness c. Cut-off d. Classification

When the auditor used the audit procedure vouching, the auditor is primarily concerned with which of the following audit objectives when testing classes of transactions? a. Occurrence b. Completeness c. Authorization d. Classification

Which of the following is an example of vouching? a. Trace inventory purchases from the acquisitions journal to supporting invoices b. Trace selected sales invoices to the sales journal c. Trace details of employee paychecks to the payroll journal d. All of the above are examples of vouching

A document which the auditor receives from the client, but which was prepared by someone outside the client's organization, is a(n) a. Confirmation b. Internal document c. External document d. Inquiry

Confirmations are most likely to be used to verify a. Individual transactions between organizations, such as sales transactions b. Bank balances and accounts receivables c. Fixed asset additions d. All three of the above

In performing your audit for a privately-held firm, your inquiries have yielded that one of the company's owner's primary motivations is to pay the least amount of income tax that is possible. Based on this observation which audit objective for ending inventory would the auditor be most concerned about ascertaining? a. Completeness b. Accuracy c. Rights and obligations d. Existence

After the auditor has completed all audit procedures, it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented. This is a highly subjective process that relies heavily on a. The generally accepted auditing standards b. The Code of Ethics for Professional Accountants c. The PFRS d. The auditor's professional judgment

Which of the following audit procedures is used extensively throughout the audit and often is complementary to performing other audit procedures? a. Inspection b. Observation c. Inquiry d. Confirmation

Which statement is incorrect about making inquiries as audit procedure? a. Responses to inquiries may provide the auditor with information not previously possessed or with corroborative audit evidence b. Responses to inquiries might provide information that differs significantly from other information that the audit has obtained c. Responses to inquiries may provide a basis for the auditor to modify or perform additional audit procedures d. Inquiry alone is sufficient to test the operating effectiveness of controls

Observation a. Consists of looking at a process or procedure being performed by others b. Consists of seeking information of knowledgeable persons, both financial and non-financial throughout the entity or outside the entity c. Is the process of obtaining a representation of information or of an existing condition directly from a third party d. Is the auditor's independent execution of procedures or controls that were originally performed as part of the entity's internal control

This consists of checking the mathematical accuracy of documents or records a. Reperformance b. Recalculation c. Confirmation d. Inspection

Even with the most effectively designed internal control, the auditor must obtain audit evidence, beyond testing the controls, for every a. Transaction b. Financial statement account c. Material financial statement account d. Financial statement account that will be relied upon by third parties

The sequence of steps in gathering evidence as the basis of the auditor's opinion is a. Substantive tests, documentation of internal, and test of controls b. Documentation of internal control, tests of controls, and substantive tests c. Documentation of internal control, substantive tests, and tests of controls d. Tests of controls, documentation of internal control, and substantive tests

An audit process is a well-defined methodology for organizing an audit to ensure that a. The evidence gathered is both sufficient and competent b. All appropriate audit objectives are specified c. All appropriate audit objectives are met d. All of the above

If the auditor were responsible for making certain that all assertions of management in the statements were correct a. Bankruptcies could no longer occur b. Bankruptcies could be reduced to a very small number c. Audits would be much easier to complete d. Audits would not be economically feasible

Investigations of new clients and re-evaluation of existing ones is an essential part of deciding a. Inherent risk b. Whether to accept engagement c. Statistical risk d. Financial risk

Which of the following is the correct order of steps in the audit process? A. Perform tests of control B. Develop an overall strategy for the expected conduct and scope of the audit C. Obtain client's written representations D. Prepare an engagement letter E. Perform substantive tests a. D, A, B, E, C b. D, B, A, E, C c. D, B, C, A, E d, D, B, E, A, C

Which of the following would an auditor least likely perform as part of the auditor's preliminary engagement activities? a. Perform procedures regarding the continuance of the client relationship and the specific audit engagement b. Evaluate compliance with ethical requirements, including independence c. Establish an understanding of the terms of the engagement d. Obtain understanding of the legal and regulatory framework applicable to the entity

Which of the following is not one of the reasons why auditor should perform preliminary audit engagement activities? a. To ensure that the auditor maintains the necessary independence and ability to perform the engagement b. To help ensure that there are no issues with management integrity that may affect the auditor's willingness to continue the engagement c. To ensure that there is no misunderstanding with the client as to the terms of the engagement d. To ensure that sufficient appropriate evidence will be obtained to support the auditor's opinion on the financial statements

Which of the following is not normally performed in the preplanning or pre-engagement phase? a. Deciding whether to accept or reject an audit engagement b. Inquiring from predecessor auditor c. Preparing an engagement letter d. Making a preliminary estimate of materiality

In making a decision to accept or continue with a client, the auditor should consider a. Its competence, Its independence, Its ability to serve the client properly, The integrity of client's management b. Its competence, Its ability to serve the client properly, The integrity of client's management c. Its independence, Its ability to serve the client properly d. Its competence, The integrity of client's management

Before accepting an engagement to audit a new client, a CPA is required to obtain a. A preliminary understanding of the prospective client's industry and business b. The prospective client's signature to the engagement letter c. An undertaking of the prospective client's control environment d. A representation letter from the prospective client

Preliminary knowledge about the client's business and industry must be obtained prior to the acceptance of the engagement primarily to a. Determine the degree of knowledge and expertise required by the engagement b. Determine the integrity of management c. Determine whether the firm is independent with its client d. Gather evidence about the fairness of the financial statements

A CPA firm's quality control procedures pertaining to the acceptance of a prospective audit client would most likely include a. Inquiry of management as to whether disagreements between the predecessor auditor and the prospective client were resolved satisfactorily b. Consideration of whether sufficient competent evidential matter may be obtained to afford a reasonable basis for an opinion c. Inquiry of third parties, such as the prospective client's bankers and attorneys, about information regarding the prospective client and its management d. Consideration of whether the internal control structure is sufficiently effective to permit a reduction in the required substantive tests

Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor audit, the CPA should a. Contact the predecessor auditor without advising the prospective client and request a complete report of all the circumstance leading to the termination with the understanding that all information disclosed will be kept confidential b. Accept the engagement without contacting the predecessor auditor since the CPA can include audit procedures to verify the reason given by the client for the termination c. Not communicate with the predecessor auditor because this would be in effect be asking the auditor to violate the confidential relationship between the auditor and client d. Advise the client of the intention to contact the predecessor auditor and request permission for the contact

The purpose of the requirement in having communication between the predecessor and successor auditor is to a. Allow the predecessor to disclose information which would otherwise be confidential b. Help the successor auditor evaluate whether to accept the engagement c. Help the client by facilitating the change of auditors d. Ensure the predecessor collects all unpaid fees prior to a change in auditor

Jem, CPA, has been retained to audit the financial statements of ZVP Co. ZVP's predecessor auditor was Moshe, CPA, who has been notified by ZVP that Moshe's services have been terminated. Under these circumstances, which party should initiate the communication between Jem and Moshe? a. Jem, the successor auditor b. Moshe, the predecessor auditor c. ZVP's controller d. The chairman of ZVP's board of directors

In an audit, communication between the predecessor and the successor auditor should be a. Authorized in an engagement letter b. Acknowledged in a representation letter c. Either written or oral d. Done with or without the client's permission

The predecessor auditor is required to respond to the request of the successor auditor for information, but the response can be limited to stating that no information will be provided when a. The predecessor auditor has poor relations with the successor auditor b. The client is dissatisfied with the predecessor's work c. There are actual or potential legal problems between the client and the predecessor auditor d. The predecessor believes that the client lacks integrity

Arnel, CPA, is succeeding Von, CPA, on the audit engagement of Jim Corporation. Arnel plans to consult Von and to review Von's prior year working papers. Arnel may do so if a. Von and Jim consent b. Jim consents c. Von consents d. Von and Arnel consent

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 successor auditor about the termination of the engagement, the predecessor auditor should a. State that he found material misstatements that the client would not revise b. Suggest that the successor auditor ask the client c. Suggest that the successor auditor obtain the client's permission to discuss the reasons d. Indicate that a misunderstanding occurred

Before accepting an engagement to audit a new client, a CPA is required to obtain a. A detailed understanding of the prospective client's industry and business b. A letter of representation from the prospective client's management c. An understanding of the prospective client's control environment d. The prospective client's consent to make inquiries of the predecessor auditor, if any

Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding a. Disagreements the predecessor had with the client concerning auditing procedures and accounting principles b. The predecessor's evaluation of matters of continuing accounting significance c. The degree of cooperation the predecessor received concerning the inquiry of the client's lawyer d. The predecessor's assessments of inherent risk and judgments about materiality

Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's a. Opinion of any subsequent events occurring since the predecessor's audit report was issued b. Understanding as to the reasons for the change of auditors c. Awareness of the consistency in the application of PFRS between periods d. Evaluation of all matters of continuing accounting significance

A successor auditor most likely would make specific inquiries of the predecessor auditor regarding a. Specialized accounting principles of the client's industry b. The competency of the client's internal audit staff c. The uncertainty inherent in applying sampling procedures d. Disagreements with management as to auditing procedures

Which of the following should an incoming auditor obtain from the predecessor auditor prior to accepting an audit engagement a. Analysis of statement of financial position accounts b. Analysis of income statement accounts c. All matters of continuing account significance d. Facts that might bear on the integrity of management

What information should a successor auditor obtain during the inquiry of the predecessor auditor prior to acceptance of the audit I. Facts that bear on the integrity of management II. Whether statistical or non-statistical sampling was used to gather evidence III. Disagreement with management concerning audit procedures IV. The effect of the client's internal audit function on the scope of the independent auditor's examination a. I and II b. I and III c. I and IV d. III and IV

The successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's a. Engagement letter, Working paper b. Engagement letter c. Working paper d. None of the above

Which of the following factors most likely would cause an auditor not to accept a new audit engagement? a. An inadequate understanding of the entity's internal control structure b. The close proximity to the end of the entity's fiscal year c. Concluding that the entity's management probably lacks integrity d. An inability to perform preliminary analytical procedures before assessing control risk

Which of the following factors most likely would influence an auditor's determination of the auditability of the entity's financial statements? a. The complexity of the accounting system b. The existence of related party transactions c. The adequacy of the accounting records d. The operating effectiveness of control procedures

In auditing financial statements of Star Corp., Land discovered information leading Land to believe that Star's prior year financial statements, which are audited by Jell, require substantial revisions. Under these circumstances, Land should a. Notify Star's audit committee and stockholders that the prior year's financial statements cannot be relied upon b. Request Star to reissue the prior year's financial statements with the appropriate revisions c. Notify Jell about the information and make inquiries about the integrity of Star's management d. Request Star to arrange a meeting among the three parties to resolve the matter

Zion requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor's work papers. The prospective client's refusal to permit this will bear directly on Hawkin's decision concerning the a. Adequacy of the preplanned audit program b. Ability to establish consistency in application of accounting principles between years c. Apparent scope limitation d. Integrity of managemenet

Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor's working paper analysis relating to a. Contingencies, Statement of Financial Position Accounts b. Contingencies c. Statement of Financial Position Accounts d. None of the above

Which of the following is not correct regarding the communications between successor and predecessor auditors? a. The burden of initiating the communication rests with the predecessor auditor b. The burden of initiating the communication rests with the successor auditor c. The predecessor auditor must receive their former client's permission prior to divulging information to the successor auditor d. The predecessor auditor may choose to provide a limited response to a successor auditor

The predecessor auditor is required to respond to the request of the successor auditor for information, but the response can be limited to stating that no information will be provided when a. Predecessor auditor has poor relations with successor auditor b. Client is dissatisfied with predecessor's work c. There are legal problems between the client and predecessor d. Predecessor believes that client lacks integrity

The purpose of an engagement letter is to a. Document the CPA firm's responsibility to external users of the audited financial statements b. Document the terms of the engagement c. Notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated d. Emphasize management's responsibility for approving the audit program

Before performing any audit procedures. The auditor and the client should agree on the a. Type of opinion to be expressed, Terms of the engagement b. Terms of the engagement c. Terms of the engagement d. Type of opinion to be expressed, Terms of the engagement

Engagement letters a. May be either oral or written b. Must be written c. Must be written and notarized d. Must be written if the client is regulated by the SEC

According to PSA 210, the auditor and the client should agree on the terms of the engagement. The agreed terms would need to be recorded in a(n) a. Memorandum to be placed in the permanent section of the auditing working papers b. Engagement letter c. Client representation letter d. Comfort letter

The auditor should document the understanding established with a client through a(n) a. Oral communication with the client b. Written communication with the client c. Written or oral communication with the client d. Completely detailed audit plan

Which of the following could be a valid reason for sending an engagement letter? a. To avoid misunderstanding with respect to the engagement; To confirm the auditor's acceptance of the appointment; To document the objective and scope of the audit; To ensure that all misstatements will be detected b. To avoid misunderstanding with respect to the engagement; To confirm the auditor's acceptance of the appointment; To document the objective and scope of the audit c. To confirm the auditor's acceptance of the appointment; To document the objective and scope of the audit d. To avoid misunderstanding with respect to the engagement; To document the objective and scope of the audit; To ensure that all misstatements will be detected

The auditor's responsibility for the detection of fraud can be found in the a. Engagement letter b. Representation letter c. Responsibility letter d. Confirmation letter

If an auditor believes that an understanding with the client has not been established, he or she should ordinarily a. Perform the audit with increased professional skepticism b. Decline to accept or perform the audit c. Assess the control risk at the maximum level and perform a primarily substantive audit d. Modify the scope of the audit to reflect an increased risk of material misstatement due to fraud

Engagement letter that documents and confirms the auditor's acceptance of the engagement would normally be sent to the client a. Before the audit report is issued b. After the audit report is issued c. At the end of the fieldwork d. Before the commencement of the engagement

An engagement letter should ordinarily include information on the objectives of the engagement and a. CPA's responsibilities; Client's responsibilities; Limitation of the engagement b. CPA's responsibilities; Limitations of the engagement c. CPA's responsibilities d. None of the above

Which of the following matters is generally included in the engagement letter? a. Management's responsibility for the entity's compliance with laws and regulations b. The factors to be considered in setting preliminary judgments about materiality c. Management's explicit liability for illegal acts committed by its employees d. An auditor's guarantee that all material misstatements will be detected

Which of the following would be least likely to be included in the auditor's engagement letter? a. Forms of the report b. Extent of his responsibilities to his client c. Objectives and scope of the audit d. Type of opinion to be issued

Which of the following is not one of the principal contents of an engagement letter? a. Objective of the financial statements b. Unrestricted access to records and documents c. Limitations of the engagement d. Management's responsibility for the financial staements

An engagement letter would not normally include a. Billing arrangement b. Arrangement concerning client's assistance c. Details of the procedure that will be performed d. Expectation of receiving a representation letter from the management

The audit engagement letter should generally include a reference to each of the following except a. The expectation of receiving a written management representation letter b. A request for the client to confirm the terms of the engagement c. A description of the auditor's method of sample selection d. The risk that material misstatements may remain undiscovered

After preliminary audit, arrangements have been made, an engagement confirmation letter should be sent to the client. The letter would not include a. A reference to the auditor's responsibility for the detection of errors or irregularities b. An estimate of the time to be spent on the audit work by audit staff and management c. A statement that management advisory services would be made available upon request d. A statement that a management letter will be issued outlining comments and suggestions as to any procedures requiring the client's attention

Arrangements concerning which of the following are least likely to be included in engagement letter? a. Auditor's responsibilities b. Fees and billing c. CPA investment in client securities d. Other forms of reports to be issued in addition to the audit report

The use of an engagement letter is the best method of documenting I. The required communication of significant deficiencies in internal control structure II. Significantly lower materiality levels that those used in the prior audit III. The description of any letters or reports that the auditor expects to issue IV. Notification of any changes in the original arrangements of the audit a. I and II b. I and IV c. II and III D. III and IV

In which of the following situations would the auditor be unlikely to send a new engagement letter to a continuing client? a. A change in terms of the engagement b. A significant change in the nature or size of the client's business c. A recent change of client management d. A recent change in the partner and/or staff in the audit engagement

In a continuing engagement, the continuing auditor would more likely send a new engagement letter when a. There is a change in the partner assigned to the engagement b. There is a recent change in the client's management c. There are new accounting pronouncements affecting the client's financial statements d. There are expected minor changes in the nature or size of the client's business

When the auditor of a parent entity is also the auditor of its subsidiary, branch or division (component); which of the following factors would least likely influence the auditor's decision to send separate letter to a component of the parent entity? a. Geographical location of the component b. Legal requirements c. Degree of ownership by parent d. Degree of independence of component's management

The purpose of an engagement letter is to a. Document the CPA firm's responsibility to external users of the audited financial statements b. Document the terms of the engagement to writing in order to minimize misunderstandings c. Notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated d. All of the above

One means of informing the client that the auditor is not responsible for the discovery of all acts of fraud is the a. Engagement letter b. Representation letter c. Responsibility letter d. Client letter