Which of the following matters would an auditor most likely consider when establishing?

T/F
The auditor plans the audit to be responsive to the initial assessment of the RoMM, but should not be prepared to revise the audit strategy and the audit plan based on the results of audit procedures

False. An auditor should be prepared to change the RoMM. Audits evolve during the audit

In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity's financial statements most likely would consider the:

a. Materiality of the accounts recently inspected by the internal auditors.
b. Results of the tests of transactions recently performed by the internal auditors.
c. Internal auditing standards developed by The Institute of Internal Auditors.
d. Tests of internal control activities that could detect errors and fraud.

C). Internal auditing standards developed by The Institute of Internal Auditors

What are the engagement partner's responsibilities?

1). Planning the audit 2). Supervising the work of engagement team members 3). Compliance with relevant auditing standards

Which of the following statements is correct concerning an auditor's use of the work of a specialist?

a. The auditor may not use the work of a specialist in matters material to the fair presentation of the financial statements.
b. The auditor need not obtain an understanding of the methods and assumptions used by the specialist.
c. The reasonableness of the specialist's assumptions and their applications are strictly the auditor's responsibility.
d. The work of a management specialist who has a contractual relationship with the client may be acceptable under certain circumstances.

D). The work of a management specialist who has a contractual relationship with the client may be acceptable under certain circumstances
*objectivity must be tested in this regard

Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality?

a. The results of the internal control questionnaire.
b. The entity's annualized interim financial statements.
c. The contents of the management representation letter.
d. The anticipated sample size of the planned substantive tests.

B). The entity's annualized interim financial statements

T/F
The auditor's preliminary judgment about materiality is generally based on either annualized interim financial statements or annual financial statements from a prior period.

What are some common examples of materiality benchmarks?

Total revenue
Gross Profit
Profit before income tax from continuing operations
Net Assets

An internal auditor's work would most likely affect the nature, timing, and extent of an independent CPA's auditing procedures when the internal auditor's work relates to assertions about the:

a. Existence of contingencies.
b.Valuation of intangible assets.
c. Existence of fixed asset additions.
d. Valuation of related party transactions.

C). Existence of fixed asset additions

If a specialist is used by an auditor, when is the auditor allowed to make a reference of the specialist in the audit report?

The auditor may only make a reference to the specialist if the auditor is expressing a modified opinion and the specialist agrees to the reference. *Also, a statement must be made that the specialist doesn't eliminate any of the auditor's responsibility relating to his expressed opinion. 

T/F
An auditor of a nonissuer may refer to the specialist in the auditor’s report if, as a result of the specialist findings, the auditor issues a modified opinion.

Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?

a. Considering whether the client's accounting estimates are reasonable in the circumstances.
b. Obtaining a written representation letter from the client's management.
c. Examining documents to detect any noncompliance with laws and regulations having a material effect on the financial statements.
d. Determining the extent of involvement of the client's internal auditors.

D). Determining the extent of involvement of the client's internal auditors

T/F
Audit documentation from prior years may contain unuseful information about the nature of the business, its organizational structure, its operating characteristics, and transactions that may require special consideration.

False. It contains useful information about the business

In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods:

a. Determine the auditor's acceptable level of audit risk.
b. Affect the auditor's preliminary judgment about materiality levels.
c. Influence the design of internal control.
d. Assist in evaluating the planned audit objectives.

C). Influence the design of internal control

When assessing materiality, the auditor should use the ............that could be material to any one of the F/S

Smallest level of misstatement!

In assessing the competence, objectivity, and application of a systematic and disciplined approach by the entity's internal audit function, an independent auditor wouldleast likely consider information obtained from:

a. Previous experience with the internal auditor.
b. Discussions with management personnel.
c. The results of analytical procedures.
d. External quality reviews of the internal auditor's activities.

C). The results of analytical procedures
*Analytical procedures would not be helpful in evaluating an internal auditor's competence, objectivity, and application of a systematic and disciplined approach by the entity's internal audit function.

Are internal auditor's deemed independent? Should an external auditor share judgments with the internal auditor?

Internal auditors are not deemed independent. They are employed by the client!
NEVER SHARE JUDGMENTS ABOUT THE AUDIT WITH INTERNAL AUDITORS

T/F
The auditor should obtain knowledge of the client's business and its industry in order to determine the effect of transactions, events, and practices on the client's financial statements.

If an assistant disagrees with the audit team at the end of the audit what should be done?

They must document their disagreement

When assessing an internal auditor's competence, a CPA ordinarily obtains information about all of the following, except:

a. Educational level and professional experience.
b. Quality of audit documentation.
c. The audit plan and audit procedures.
d. Access to information about related parties.

D). Access to information about related parties
Has no influence on an internal auditor's competence

Why might an auditor review the client's accounting policies and procedures as a part of the planning stage?

An auditor would review the client's accounting policies and procedures as part of obtaining an understanding of the client's operations and business. This understanding is important because it affects the design of internal control, which in turn impacts planned auditing procedures.

An auditor is required to obtain an understanding of the entity's business, including business cycles and reasons for business fluctuations. What is the audit purpose most directly served by obtaining this understanding?

a. To enable the auditor to accurately identify significant deficiencies in internal control.
b. To allow the auditor to more accurately perform tests of controls.
c. To decide whether it will be necessary to perform analytical procedures.
d. To assist the auditor in accurately interpreting information obtained during an audit.

D). To assist the auditor in accurately interpreting information obtained during an audit

A retail entity uses electronic data interchange (EDI) in executing and recording most of its purchase transactions. The entity's auditor recognizes that the documentation of the transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would:

a. Increase the sample of EDI transactions to be selected for cutoff tests.
b. Perform tests several times during the year, rather than only at year-end.
c. Decrease the assessed level of control risk for the existence or occurrence assertions.
d. Plan to make a 100% count of the entity's inventory at or near the year-end.

B). Perform tests several times during the year, rather than only at year-end

When issuing an unmodified opinion, the auditor who evaluates the audit findings should be satisfied that the:

a. Amount of factual misstatements are acknowledged and recorded by the client.
b. Estimate of the total misstatement is less than a material amount.
c. Amount of identified misstatements are documented in the management representation letter.
d. Estimate of the total misstatement includes the adjusting entries already recorded by the client.

B). Estimate of the total misstatement is less than a material amount
total includes (factual, judgmental, and projected)

What are the financial statement assertions? COVERU

Completeness Cut Off Valuation, Allocation, & Accuracy Existence and Occurrence Rights and Obligations Understandability and Classification

T/F

In developing an overall audit strategy, an auditor should consider preliminary evaluations of materiality, audit risk, and internal control.

Which of the following factors most likely would assist an independent auditor in assessing the objectivity of the internal auditor?

a. The consistency of the internal audit reports with the results of work performed.
b. The appropriateness of internal audit conclusions in the circumstances.
c. The professional certifications of the internal audit staff.
d. The organizational status of the director of internal audit.

D). The organizational status of the director of internal audit
* Objectivity is reflected by the organizational level to which the internal auditor reports.

What are the three main factors listed by PCAOB standards regarding the nature and extent of necessary planning activities?

1). Size and complexity of the company 2). The auditor's previous experience with the company 3). Changes in circumstances that occur during the audit

T/F
According to PCAOB standards, a centralized accounting function is indicative of less complex operations.

Objectivity of internal auditors is reflected by?

1). Organizational level to which the internal auditor reports 2). policies prohibiting the audits of areas where the internal auditor lacks independence

What do auditors do for both specialists and internal auditors?

Which of the following matters does an auditor usually include in the engagement letter?

a. Arrangements regarding fees and billing.
b. Analytical procedures that the auditor plans to perform.
c. Indications of negative cash flows from operating activities.
d. Identification of working capital deficiencies.

A). Arrangements regarding fees and billing 

Which of the following statements is correct regarding an independent auditor's reliance on a client's internal audit staff?

a. An independent auditor should not reduce the amount of audit testing based on the work of internal auditors.
b. An independent auditor should assess the organizational status of the director of internal audit.
c. An internal auditor should provide direct assistance to the independent auditor during preparation of audit workpapers.
d. An independent auditor should use internal audit workpapers when available.

B). An independent auditor should assess the organizational status of the director of internal audit (objectivity)

T/F

Internal auditors may assist the auditor in obtaining an understanding of internal control and in performing tests of controls and substantive tests.