M3-Terms of Engagement Flashcards
Intentional misapplication of accounting principles would indicate that management lacks integrity and as a result, the auditor might conclude that a financial statement audit cannot be performed. (true or false)
true
The control environment is the foundation for all othre components of internal control. Management’s disregard of its responsibility to maintain an adequate internal control environment therefore compromises its ability to provide reasonable assurance regarding reliable financial reporting. The auditor may conclude that the risk that the financial framework used by the client may be unacceptable is great enough that an audit should not be conducted. (true or false)
true
Inquiry of the predecessor auditor is a required pre-acceptance procedure. However, consent of the prospective client must be obtained before a CPA can make such inquiries of the predecessor auditor. (true or false)
true
Inquiries should include specific questions regarding, among other things, facts that might bear on the integrity of management; disagreements with management as to accounting principles, auditing procedures, or other similarly significant matters; communications with those charged with governance regarding fraud, acts of noncompliance with laws and regulations, and matters relating to internal control; and the predecessor’s understanding as to the reasons for the change of auditors. (true or false)
true
An understanding with the client should be established regarding management’s responsibilities, which include the preparation and fair representation of the financial statements in accordance with the applicable financial reporting framework. The understanding should be documented through a written communication, such as an engagement letter. (true or false)
true
The auditor does not consult with the client about audit procedures. (true or false)
true
Evaluating the CPA’s ability to properly service the client would be most helpful to a CPA in deciding whether to accept a new audit client. (true or false)
true
The auditor is required to establish an understanding with the client, and this understanding should be documented in the form of an engagement letter. The understanding (and therefore the letter) should encompass management’s responsibilities, which include providing the auditor with a representation letter at the conclusion of the engagement. (true or false)
true
Management may choose not to correct internal control deficiencies due to cost-benefit consideration, and this is not part of the understanding between the auditor and the client. (true or false)
true
Prior to commencing field work, the auditor would likely discuss with management any assistance desired from client staff. This is part of establishing an understanding with the client. (true or false)
true
The auditor’s understanding with the client often includes discussion of any specialists who will be involved in the engagement. (true or false)
true
If the predecessor auditor refuses to give the current auditor of a nonissuer access to the documentation, the current auditor should review the risk assessment of the opening balances of the financial statements. (true or false)
true
An auditor’s engagement letter typically includes discussion of limitations of the engagement, such as the fact that the auditor will obtain only reasonable assurance, and therefore a material misstatement may remain undetected. (true or false)
true
In order to observe the physical inventory count the auditor would have to coordinate schedules with the client. This timing is usually agreed upon before implementation of the audit strategy. (true or false)
true
Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years should be discussed AFTER accepting an audit engagement. (true or false)
true
