The appropriateness of evidence available to an auditor is least likely to be affected by the

An auditor should agree with management upon the terms of an engagement. This agreement generally includes:

A. Managements responsibility for fraud and errors of employees that may cause material misstatement.
**B. The auditor's responsibility for ensuring that those charged with governance are aware of any significant deficiencies or material weaknesses in internal control that come to the auditor's attention.
C. Management's responsibility for providing the auditor with an assesment of the risk of material misstatement due to fraud.
D. The auditor's responsibility for determining judgements about materiality and audit risk

An auditor's engagement letter most likely will include:

Management's acknowledgment of its responsibility for maintaining effective internal control.

Which of the following statements would least likely appear in an auditor's engagement letter?

D. After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement.

The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the:

Which of the following factors most likely would cause an auditor to decline a new audit engagement?

C. Failure of management to satisfy the preconditions for an audit.

In assessing whether to accept a client for an audit engagement, a CPA should consider the:

Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?

B. There will be a client-imposed scope limitation.

Before accepting an engagement to audit a new client, an auditor should:

A. Make inquiries of the predecessor auditor after obtaining the consent of management

An auditor ordinarily should request to review the predecessor's audit documentation relating to

Which of the following circumstances would permit an independent auditor to accept an engagement after the close of the fiscal year?

D. Remedy of audit limitations resulting from accepting the engagement after the close of the end of the year, such as those relating to the existence of physical inventory.

Upon discovering material misstatements in a client's financial statements that the client would not revise, a predecessor auditor withdrew from the engagement. If asked by the auditor about the termination of the engagement, the predecessor auditor should

C. Suggest that the auditor obtain the client's permission to discuss the reasons.

In an audit based on International Standards on Auditing (ISA's), a successor auditor would normally become satisfied with opening balances by

B. Reviewing the predecessor's working papers.

Early appointment of the auditor enables preliminary work to be performed by the auditor that benefits the client because it permits the audit to be performed in

A. A more efficient manner

With respect to the auditor's planning of a year-end audit, which of the following statements is always true?

D. It is an acceptable practice to carry out part of the audit at interim dates

Which of the following is required documentation in an audit in accordance with auditing standards?

B. An audit plan documenting the procedures to be used to reduce audit risk.

The auditor should establish an overall audit strategy. Which one of the following statements is most consistent with this requirement?

D. The auditor should plan the audit so that it will be performed effectively

In developing an audit plan, an auditor should

D. Perform risk assessment procedures

Which of the following is an auditor least likely to perform in planning a financial statement audit?

C. Selecting a sample of vendors' invoices for comparison with receiving reports.

In planning the audit engagement, the auditor should consider each of the following except

D. The kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed.

ulWhich of the following is an effective audit planning and control procedure that helps prevent misunderstandings and inefficient use of audit personnel?

C. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.

Audit planning for an initial audit most likely includes

C. Performing procedures involving opening balances.

Which of the following factors does a CPA ordinarily consider in the planning stage of an audit engagement?

In developing written audit plans, an auditor should design specific audit procedures that relate primarily to the

D. Financial statement assertions

Which of the following ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion?

B. The auditor's judgement

Financial statement audit plans usually should be developed

B. After the auditor has established the overall audit strategy.

One of the preliminary roles of an engagement work program is to

A. Serve as a tool for planning and conducting engagement work.

Which of the following is an aspect of scheduling and controlling the audit engagement?

A. Including the audit plan a column for estimated and actual time.

The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the

A. Timing of inventory observation procedures to be performed.

Which of the following is an engagement attribute for an audit of an entity that processes most of its financial data in electronic form without any paper documentation?

C. Performance of audit tests of a continuous basis.

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the

B. Results are consistent with the conclusions to be presented in the auditor's report.

The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to

B. Document the details of the disagreement with the conclusion reached.

The in-charge auditor most likely has a supervisory responsibility to explain to the staff assistants

B. How the results of various auditing procedures performed by the assistants should be evaluated.

The audit risk against which the auditor and those who rely on his/her opinion require reasonable protection is a combination of two separate risks at the assertion level. The first risk (consisting of inherent risk and control risk) is that balances, classes of transactions, or disclosures contain material misstatements. The second is that,

B. Material misstatements that occur will not be detected by the audit

Some account balances, such as those for pensions or leases, are the results of complex calculations. The susceptibility to material misstatements in these types of accounts is defined as

As the acceptable level of detection risk decreases, an auditor may change the

B. Nature of substantive procedures from a less effective to a more effective procedure.

The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is

The acceptable level of detection risk is inversely related to the

A. Assurance provided by substantive procedures.

When planning an audit, an auditor should

B. Determine materiality for the financial statements as a whole

Which of the following audit risk components may be assessed in non qualitative terms?

Which of the following would an auditor most likely use in determining the auditor's preliminary judgement about materiality for the financial statements as a whole?

A. The anticipated sample size of the planned substantive procedures.

When expressing an unmodified opinion, the auditor who evaluates the audit findings should determine whether

B. Uncorrected misstatements are material

Audit risk at the assertion level consists of inherent risk, control risk, and detection risk. Which of the following statement is true?

A. Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk

The concepts of audit risk and materiality are interrelated and must be considered together by the auditor. Which of the following is true

B. The phrase in the auditor's report "present fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America" indicates the auditor's belief that the financial statements as a whole are not materially misstated.

A client decides not to make an auditor's proposed adjustments that collectively are not material and wants the auditor to issue the report based on the unadjusted numbers. Which of the following statements is correct regarding the financial statement presentation?

A. The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.

Madison Corporation has a few large accounts receivable that total $1,000,000. Nassau Corporation has a great number of small accounts receivable that also total $1,000,000. The importance of a misstatement in any one account is therefore grater for Madison than for Nassau. This is an example of the auditor's concept of

Which of the following statements about materiality is most likely to be true?

B. Performance materiality is less than materiality for the financial statements as a whole.

Which of the following statements is true concerning analytical procedures used as risk assessment procedures?

B. Analytical procedures used as risk assessment procedures ordinarily use data aggregated at a high level.

Which of the following procedures is the auditor most likely to perform after accepting an initial audit engagement?

C. Tour the client's facilities

Analytical procedures used as risk assessment procedures should

C. Address the risk of material misstatement of revenue due to fraudulent financial reporting

Prior to beginning a new audit engagement in which a CPA does not have experience in the client's industry, the CPA should

D. Obtain knowledge of industry, regulatory, and other external factors

To obtain an understanding of a continuing client in planning an audit, an auditor most likely will

B. Review prior-year audit documentation for the client.

A CPA wishes to determine how various issuers have complied with disclosure requirements of a new financial accounting standard. Which of the following information sources would the CPA most likely consult for this information?

B. AICPA Accounting Trends and Techniques

An auditor obtains an understanding of the entity and its enironment to

D. Identify areas of audit emphasis

The components of internal control include

B. A process of managing risks relevant to preparing financial statements.

An auditor is planning an audit engagement for a new client in a business unfamiliar to the auditor. Which is the least useful source of information for the understanding of the entity and its environment, including its internal control?

D. Results of performing further audit procedures.

The objective of performing analytical procedures as risk assessment procedures in an audit is to identify

A. Unusual transactions and events

When an auditor obtains an understanding of the entity and its environment, including its internal control, which of the following is the most likely order of performing the steps A through C below?
A=Test of controls
B= Preparation of a flowchart documenting the understanding of the client's internal control
C=Substantive procedures

Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except

A. Tracing transactions through the system to determine whether procedures are being applied as prescribed

Analytical procedures can best be categorized as

A. Substantive procedures

The objective of performing analytical procedures is to identify the existence of

A. Unusual transactions and events

The objective of analytical procedures performed as risk assessment procedures is to

C. Enhance the auditor's understanding of the client's business

Which of the following statements about analytical procedures is true?

D. Analytical procedures alone may provide the appropriate level of assurance for some assertions.

Which non financial information is an auditor most likely to consider in performing analytical procedures?

For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent

Analytical procedures are most appropriate when testing which of the following types of transactions?

C. Operating expense transactions

According to professional standards, analytical procedures are least likely to be applied to

C. Compile financial statements

Analytical procedures performed to assist in forming an overall conclusion suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that

C. Additional audit procedures are required

A basic premise underlying analytical procedures is that

D. plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

Which of the following factors has the least influence on an auditor's consideration of the reliability of data for purposes of analytical procedures?

A. Whether the data were processed in a computer system or in a manual accounting system.

Which of the following is the most reliable analytical approach to verification of the year-end financial statement balances of a wholesale business?

B. Verify commission expense by multiplying sales revenue by the company's standard commission rate

For the fiscal year ending Dec. 31, previous year and the current year, Justin CO. has net sales of $1,000,000 and $2,000,000, average gross receivables of $1,000,000 and $300,000, and allowance for uncollectible accounts receivable of #30,000 and $50,000. If the accounts receivable turnover and the ratio of allowance for uncollectible accounts receivable to gross accounts receivable are calculated, which of the following best represents the conclusions to be drawn?

B. Accounts receivable turnovers are 10.0 and 6.6, and the ratios of uncollectible accounts receivable are 0.30 and 0.16. Examine allowance for possible understatement of allowance.

An auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the

B. Auditor's determination about whether audit risk can be sufficiently reduced.

Which of the following is least likely to be comparable between similar companies in the same industry line of business?

Which result of an analytical procedure suggests the existence of obsolete merchandise

A. Decrease in the inventory turnover rate

Which of the following is the most likely cause of the decrease in accounts receivable turnover?

B. Liberalization of credit policy

An auditor discovers that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This trend may indicate that

A. Fictitious credit sales have been recorded during the year

Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the ratio of gross profit to sales suggests which of the following possibilities?

The auditor is evaluating the effectiveness of a sales commission plan adopted 12 months earlier. An audit procedure likely to provide strong evidence of the plan's effectiveness is to

C. Regress monthly indices of external economic conditions against sales for the 2 preceding years and compare predictions with reported sales.

Analytical procedures used to form an overall audit conclusion generally include

A. Considering unusual or unexpected account balances that were not previously identified.

The independent auditor should understand the internal audit function as it related to internal control because the

C. Work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures.

For which of the following judgments with an entity's internal auditor who is assessed to be both competent and objective?

If the independent auditors decide that it is efficient to consider how the work performed by the internal auditors may affect the nature, timing, and extent of audit procedures, they should assess the internal auditors'

A. Competence and objectivity

In assessing the competence and objectivity of an entitiy's internal auditor, an independent auditor is least likely to consider information obtained from

D. The results of analytical procedures

In assessing the objectivity of internal auditors, the independent CPA who is auditing the entitity's financial statements most likely considers the

A. Internal auditing standards developed by The Institute of Internal Auditors.

Internal auditing can affect the scope of the external auditor's audit of financial statements by

A. decreasing the external auditor's need to perform detailed tests

In assessing the competence of an internal auditor, an independent CPA most likely would obtain information about the

A. Quality of the internal auditor's documentation.

Which of the following is a false statement about the relationship of the internal auditor and the scope of the external audit of a company's financial statements?

D. The internal auditors may determine the extent to which audit procedures should be employed by the external auditor

During the audit of financial statements, an internal auditor may provide direct assistance to an independent CPA in

Which of the following is a false statement about the use of the internal auditor's work by the auditor?

C. The ISA's do not allow the auditor to use the work of the internal auditor.

Which of the following statements is true about the auditor's use of the work of an auditor's specialist?

D. The auditor should obtain an understanding of any significant assumptions and methods used by the specialist.

Which of the following is not considered an auditor's specialist?

auditor referred to an auditor's specialist's findings in the auditor's report. This may be an appropriate reporting practice if the

C. Auditor's report contains a qualified opinion

When the auditor uses the work of an auditor's external specialist, an agreement should exist between the auditor and the specialist. The documentation of this agreement most likely includes:

C. The applicability of the same confidentiality

When management's specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialists work is acceptable if

C. The auditor conducted the same audit tests and procedures as would have been applicable if the client's employees had taken the physical inventory.

Most of the auditor's work in forming an opinion on financial statements consists of

B. Obtaining and evaluating audit evidence

Which of the following is a false statement about the relationship of financial statement assertions and audit procedures?

A. The relationship between financial statement assertions and audit procedures should be one-to-one.

Which of the following statements about audit evidence is true?

B. The sufficiency and appropriateness of audit evidence is a matter of professional judgment

In gathering evidence in the performance of substantive procedures, the auditor most likely

B. Relies on persuasive rather than conclusive evidence in the majority of classes.

The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement addresses the verification of

The appropriateness of evidence available to an auditor is least likely to be affected by the

D. Sampling method employed by the auditor to obtain a sample of such evidence.

Which of the following statements about evidence is true?

A client's accounting records cannot be considered sufficient audit evidence to support the financial statements.

Which of the following procedures would provide the most reliable audit evidence?

D. Inspection of bank statements obtained directly from the client's financial institution.

The most reliable forms of documentary evidence are those documents that are

D. Authorized by a responsible official

AU-C 500 describes five generalizations concerning the reliability of evidence. The situations given below indicate the relative degrees of assurance provided by two types of evidence obtained in different situations. Which describes an exception to one of the generalizations?

C. The report of an expert regarding the valuation of a collection of paintings held as an investment provides greater assurance than the auditor's physical observation of the paintings.

Which of the following presumptions is least likely to relate to the reliability of audit evidence?

B. An auditor's opinion is formed within a reasonable time to achieve a balance between benefit and cost.

Observation is considered a reliable audit procedure but one that is limited in usefulness. However, it is used in a number of different audit situations. Which of the following statements is true regarding observation as an audit tecehnique?

C. It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place.

Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to provide a reasonable basis for an opinon?

Assuming low assessed risks of material misstatement, which of the following audit procedures is least likely to be performed?

B. Search for unrecorded cash receipts

You have been assigned to audit the maintenance department of an organization. Which of the following is likely to produce the least reliable audit evidence?

A. Notes on discussions with mechanics in the maintenance operation

If an auditor conducts an audit of financial statements in accordance with applicable auditing standards, which of the following will the auditor most likely dtect?

A. Misposting of recorded transactions.

Each of the following might, by itself, form a valid basis for an auditor to decide to omit a procedure except for the

A. difficulty and cost involved in testing a particular item

Before applying substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should

C. consider whether the amounts of the period-end balances selected for interim testing are reasonably predictable

A client uses a suspense account for unresolved questions whose final accounting has not been determined. If a balance remains in the suspense account at year end, the auditor would be most concerned about

A. Suspense debits that management believes will benefit future operations.

The negative request form of accounts receivable confirmation may be used when the

2 assertions for which confirmation of accounts receivable balances provides primary evidence are

C. rights and obligations and existence

In confirming accounts receivable, an auditor decided to confirm customer's account balances rather than idividual invoices. Which of the following most likely will be included with the client's confirmation letter?

D. A client-prepared statement of account showing the details of the customer's account balance.

Which of the following statements will an auditor most likely add to the negative form of confirmations of accounts receivable to encourage timely consideration by the recipient?

C. "If you do not report any differences within 15 days, it will be assumed that this statement is correct."

Auditors may use positive or negative forms of confirmation requests for accounts receivable, An auditor most likely will use

B. A combination of the two forms, with the positive form used for large balances and the negative form for the small balances.

In the confirmation of accounts receivable, the auditor will most likely

A. Request confirmation of a sample of the inactive accounts.

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because

C. The auditor cannot infer that all nonrespondents have verified their account information.

To reduce the risks associated with accepting fax resopnses to requests for confirmations of accounts receivable, an auditor most likely would

B. Verify the sources and contents of the faxes in telephone calls to the senders.

External confirmation of accounts receivable ordinarily is required. The presumption that an auditor will confirm accounts receivable is not overcome if

C. The combined assessed level of inherent and control risk is high

An auditor confirms a representative number of open accounts receivable as of December 31 and invesitgates respondants exceptions and comments. By this procedure, the auditor is most likely to learn of which of the following?

A. One of the cashiers has been covering a personal embezzlement by lapping

During the process of confirming receivables as of December 31. Year 1, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on january 9, year 2." the auditor would most likely

D. Verify that the amount was received

According to GAAS, audit documentation that records the priocedures used by the auditor to gather evidence should be

C. Prepared to enable an experienced auditor with no connection to the audit to understand the significant judgments made.

Which of the following documentation is not required for an audit in accordance with auditing standards?

C. A client letter that details the auditor's planned field work.

The PCAOB's AS no. 3 Audit Documentation, requires that a complete and final set of audit documentation be assembled for retention as of a date not more than 45 days after the audit report release date. After that date, audit documentation may

B. Be added, but no audit documentation may be deleted or discarded

Standardized working papers are often used, chiefly because they allow audit documentation to be prepared more

An auditors working papers will ordinarily be least likely to include documentation showing how the

A. Client's schedules were prepared

Which of the following is usually included or shown in the audit documentation?

D. A summary of how significant findings were addressed

Although the quantity and content of audit documentation varies with each particular engagement, an auditor's permanent files most likely include

D. Analyses of capital stock and other equity accounts

Audit working papers are indexed by means of reference numbers. The primary purpose of indexding is to

A. Permit cross-referencing and simplify supervisory review

The audit working paper that reflects the major compnents of an amount reported in the financial statemetns is the

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes but containing columns for

C. Reclassifications and adjustments

In the course of the audit of financial statements for the purpose of expressing an opinion, the auditor will normally prepare a schedule of uncorrected misstatements. The primary purpose served by this schedule is to

C. Identify the potential financial statement effects of missstatements that were not considered clearly trivial when discovered.

A difference of opinion about accounting and auditing matter relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be dissociated from the resolution of the matter. The audit documentation would probably be

D. Expanded to document the assistant auditor's position and the manner in which the difference in opinion was resolved.

An auditor who has accepted an engagement to audit financial statements wishes to review the predecessor's audit documentation., Such a review is

A. Permitted if the client and the predecessor auditor consent

Which of the following analyses appearing in a predecessor's audit documentation is the auditor least likely to be interested in reviewing?

D. Analysis of income statement accounts

using personal computer in auditing may affect the methods used to review the work of staff assistants because

D. Working paper documentation may not contain readily observable details of calculations

After field work audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap up working paper review. This second review usually focuses on

A. The fair presentation of the financial statements in accordance with the applicable financial reporting network

Which of the following statements is most accurate regarding sufficient and appropriate documentation

B. Sufficient and appropriate documentation should include evidence that it has been reviewed.

What is appropriateness of audit evidence?

What are the factors that affect sufficiency and appropriateness of audit evidence?

Which of the following would least likely be part of an auditor's procedures?

What kind of evidence is most appropriate for auditor?