Chapter 5 [Salosagcol] Flashcards
This involves developing an overall strategy for the expected conduct and scope of the examination; the nature, extent, and timing of which vary with the size and complexity, and experience with and knowledge of the entity
a. Audit planning
b. Audit procedure
c. Audit program
d. Audit working papers
a
Audit plans should
a. Be flexible
b. Precede actions; Be flexible; Be cost beneficial
c. Precede actions; Be cost beneficial
d. Be cost beneficial
b
Adequate planning of the audit work helps ensure that
a. Appropriate action is devoted to important areas; All misstatements will be detected; Potential problems are identified; The work is completed expeditiously
b. All misstatements will be detected; The work is completed expeditiously
c. Appropriate action is devoted to important areas; Potential problems are identified; The work is completed expeditiously
d. Appropriate action is devoted to important areas; Potential problems are identified
c
Which of the following is not normally performed in the planning stage of the audit
a. Develop an overall audit strategy
b. Request that bank balances be confirmed
c. Schedule engagement staff and audit specialists
d. Identify the client’s reason for the audit
b
Which of the following procedures would a CPA ordinarily perform during audit planning?
a. Obtain understanding of the client’s business and industry
b. Review the client’s bank reconciliation
c. Obtain client’s representation letter
d. Review and evaluate client’s internal control
a
Early appointment of the independent auditor will enable:
a. A more thorough examination to be performed
b. A proper study and evaluation of internal control to be performed
c. Sufficient competent evidential matter to be obtained
d. A more efficient examination to be planned
d
In developing the overall audit plan for a new client, factor not to be considered is
a. Materiality levels
b. The client’s business, including the structure of the organization and accounting system used
c. The amount of estimated audit fee
d. The audit risks and procedures to be performed to achieve audit objectives
c
In planning the audit engagement, the auditor should consider each of the following except
a. Matters relating to the entity’s business and the industry in which it operates
b. The entity’s accounting policies and procedures
c. Anticipated levels of control risk and materiality
d. The kind of opinion likely to be expressed
d
A CPA is conducting the first examination of a client’s financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor’s working papers. This procedure is
a. Acceptable if the client and the predecessor auditor agree to it
b. Acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor’s work
c. Required if the CPA is to render an unmodified opinion
d. Unacceptable because the CPA should bring an independent viewpoint to a new engagement
a
Which of the following is not one of the three main reasons why the auditor should properly plan engagements?
a. To enable proper on-the-job training of employees
b. To enable the auditor to obtain sufficient competent evidence
c. To avoid misunderstandings with the client
d. To help keep audit costs reasonable
a
During the initial planning phase of an audit, a CPA most likely would
a. Identify specific internal control activities that are likely to prevent fraud
b. Evaluate the reasonableness of the client’s accounting estimates
c. Discuss the timing of the audit procedures with the client’s management
d. Inquire of the client’s attorney as to whether any unrecorded claims are probable of assertion
c
Which of the following procedures would an auditor most likely perform in planning a financial statement audit?
a. Inquiring of the client’s legal counsel concerning pending litigation
b. Comparing the financial statements to anticipated results
c. Examining computer generated exception reports to verify the effectiveness of internal control
d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities
b
Which of the following is the most likely first step an auditor would perform at the beginning of an initial audit engagement?
a. Prepare a rough draft of the financial statements and of the auditor’s report
b. Study and evaluate the system of internal administrative control
c. Tour the client’s facilities and review the general records
d. Consult with and review the work of the predecessor auditor prior to discussing the engagement with the client management
c
A tour of the client’s facilities is helpful in obtaining an understanding of the client’s operations because
a. The auditor will be able to assess the physical safeguards over the assets
b. The auditor may be better able to assess certain internal controls
c. The auditor obtains a broader perspective about the company as a whole
d. All of the above
d
Prior to beginning the field work on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA should
a. Reduce audit risk by lowering the preliminary levels of materiality
b. Design special substantive tests to compensate for the lack of industry experience
c. Engage financial experts familiar with the nature of the industry
d. Obtain a knowledge of matters that relate to the nature of the entity’s business
d
An extensive understanding of the client’s business and industry and knowledge about the company’s operations are essential for doing an adequate audit. For a new client, most of this information is obtained
a. From the predecessor auditor
b. From the Securities and Exchange Commission
c. From the permanent file
d. At the client’s premises
d
The audit team gathers information about a new client’s business and industry in order to obtain:
a. An understanding of the client’s internal control system relevant to financial reporting
b. An understanding of how economic events and transactions affect the company’s financial statements
c. Information about engagement risk
d. Information regarding whether the company is engaging in fraudulent financial reporting
b
In performing an audit of financial statements, the auditor should obtain knowledge of the client’s business sufficient to
a. Make constructive suggestions concerning improvements in internal control
b. Identify transactions and events that may affect the financial statements
c. Develop an attitude of professional skepticism
d. Assess the level of control risk
b
Each of the following may be relevant to an auditor when obtaining knowledge about the client’s business and industry except
a. Discussion with people within or outside the entity
b. Reading publications related to the industry
c. Visit of the entity’s premises
d. Performing tests of control
d
To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely would
a. Perform tests of details of transactions and balances
b. Review prior year working papers and the permanent file for the client
c. Read specialized industry journals
d. Re-evaluate the client’s internal control system
b
Which of the following statements is correct, when obtaining an understanding about the client’s business?
a. The level of knowledge required of the auditor is ordinarily more than the level of knowledge possessed by management
b. Preliminary knowledge about the entity’s industry must be obtained after accepting the engagement to determine whether the auditor has the necessary knowledge to perform the audit
c. Following the acceptance of the engagement, the auditor should obtain detailed knowledge about the client’s business preferably at the start of the engagement
d. For continuing engagements, the auditor may no longer obtain knowledge about the client’s business anymore
c
Information about the client’s business appropriately assists the auditor in:
a. Assessing risks and identifying potential problems; Planning and performing the audit effectively and efficiently; Evaluating audit evidence
b. Assessing risks and identifying potential problems; Evaluating audit evidence
c. Planning and performing the audit effectively and efficiently; Evaluating audit evidence
d. Assessing risks and identifying potential problems; Planning and performing the audit effectively and efficiently
a
On initial engagements, the auditor is required to obtain sufficient appropriate evidence that
a. The opening balances do not contain material misstatements that materially affect the current period’s financial statements
b. The prior period’s ending balances have been correctly brought forward to the current period or, when appropriate, have been restated
c. Appropriate accounting policies are consistently applied or changes in accounting policies have been properly accounted for and adequately disclosed
d. The prior period financial statements have been
d
For initial audit engagements, the auditor should obtain sufficient appropriate audit evidence that:
- The opening balances do not contain misstatements that materially affect the current period’s financial statements;
- The prior period’s closing balances have been correctly brought forward to the current period or, when appropriate, have been restated; and
- Appropriate accounting policies are consistently applied or changes in accounting policies have been properly accounted for and adequately presented and disclosed.
Why do auditors establish preliminary judgment about materiality?
a. To determine the appropriate level of staff to assign to the audit
b. So that the client can know what records to make available to the auditor
c. To plan the appropriate audit evidence to accumulate and develop an overall audit strategy
d. To finalize the control risk assessment
c