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This preview shows page 4 - 6 out of 6 pages. 18. Which of the following procedures would an auditor most likely perform in planning afinancial 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 internalcontrols.D. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities. 19. Auditors should design the written audit plan so that Get answer to your question and much more 20. External auditors are responsible Get answer to your question and much more 21. Certain conditions and circumstances are often present when management fraud occurs.Which of the following isnotsuch a condition or circumstance? Get answer to your question and much more 22. An auditor assesses the risk of material misstatement because itA. Is relevant to the auditor's understanding of the control environment.B. Provides assurance that the auditor's overall materiality levels are appropriate.C. Indicates to the auditor where inherent risk may be the greatest.D.Affects the level of detection risk that the auditor may accept. 23. Which of the following statements best describes auditors' responsibility to detect errors andfrauds? Get answer to your question and much more 24. Generally accepted auditing standards state that analytical procedures Get answer to your question and much more 25. Sources of financial and nonfinancial data donotinclude Get answer to your question and much more End of preview. Want to read all 6 pages? Upload your study docs or become a Course Hero member to access this document Tags Financial audit, C Determination Newly Uploaded DocumentsNewly Uploaded Documents
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Get faster at matching terms Terms in this set (373)In planning the audit engagement, the auditor should consider each of the following except The kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed. Which of the following factors most likely would cause an auditor to decline a new audit engagement? Failure of management to satisfy the preconditions for an audit. Which of the following statements reflects an auditor's responsibility for detecting fraud and errors? An auditor should design the audit to provide reasonable assurance of detecting fraud and errors that are material to the financial statements. Which of the following would not be considered an analytical procedure? Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics. The objective of tests of details of transactions performed as tests of controls is to Evaluate whether internal controls operated effectively. While performing an audit of the financial statements of a company for the year ended December 31, Year 1, the auditor notes that the company's sales increased substantially in December Year 1, with a corresponding decrease in January Year 2. In assessing the risk of fraudulent financial reporting or misappropriation of assets, what should be the auditor's initial indication about the potential for fraud in sales revenue? There is a broad indication of financial reporting fraud. As the acceptable level of detection risk increases for a given audit risk, an auditor may change the Timing of substantive procedures from year end to an interim date. Which of the following steps should an auditor perform first to determine the existence of related parties? Inquire about the existence of related parties from management. Which of the following levels would most likely address the risk of material misstatement by the auditor's consideration of an entity's control environment? Financial statements. When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate? Test the operating effectiveness of such controls in the current audit. Before accepting an audit engagement, an auditor should make specific inquiries of the predecessor auditor regarding the predecessor's Understanding as to the reasons for the change of auditors. Which of the following procedures would a CPA most likely perform in the planning stage of a financial statement audit? Compare recorded financial information with anticipated results from budgets and forecasts. Which of the following actions should be taken by a CPA who has been asked to audit the financial statements of a company whose fiscal year has ended?
Ascertain whether circumstances are likely to permit the auditor to obtain sufficient appropriate evidence and express an unmodified opinion. Which of the following is an aspect of scheduling and controlling the audit engagement? Include in the audit plan a column for estimated and actual time. When an auditor increases the assessed risks of material misstatement because certain control activities were determined to be ineffective, the auditor most likely would increase the Extent of tests of details. A precondition for an audit most likely is not present when management Refuses to acknowledge its responsibility for the fair presentation of the financial statements in accordance with the applicable reporting framework. Which of the following situations represents a risk factor that relates to misstatements arising from misappropriation of assets? A lack of independent checks. For a reporting entity that has participated in related party transactions that are material, disclosure in the GAAP-based financial statements should include The nature of the relationship and the terms and manner of settlement. Which of the following circumstances would permit an independent auditor to accept an engagement after the close of the fiscal year? Remedy of 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. 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 Identify the potential financial statement effects of misstatements that were not considered clearly trivial when discovered. A CPA is conducting the first audit of a nonissuer's financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor's audit documentation. This procedure is Acceptable if the client and the predecessor auditor agree to it. Which of the following statements about the auditor's response to assessed risks of material misstatement in a financial statement audit is true? Risk assessment procedures performed to obtain an understanding of an entity's internal control also may serve as tests of controls. After obtaining an understanding of internal control, an auditor of a nonissuer's financial statements may place no reliance on controls for some assertions because the auditor Believes the controls are unlikely to be effective. 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 Fictitious credit sales have been recorded during the year. An auditor most likely will use analytical procedures to form an overall conclusion to Determine whether additional audit evidence may be needed. A CPA wishes to determine how various issuers have complied with the disclosure requirements in a new Accounting Standards Update. Which of the following information sources would the CPA most likely consult for this information? AICPA Accounting Trends & Techniques. An auditor generally tests the segregation of duties related to inventory by Personal inquiry and observation. When expressing an unmodified opinion, the auditor who evaluates the audit findings should determine whether Uncorrected misstatements are material. Which of the following factors is most important concerning an auditor's responsibility for considering fraud? The risk that the financial statements are not fairly presented in all material respects, in accordance with the applicable reporting framework. Which of the following audit activities is an analytical procedure used to form an overall conclusion to ensure that the financial statements are free from material misstatement? Comparing the current year's financial statements with those of the prior year. Which of the following statements is correct regarding the predictability of analytical procedures in a financial statement audit? Relationships involving income statement accounts tend to be more predictable than relationships involving only balance sheet accounts. If not already done to form an overall conclusion, the auditor should perform analytical procedures relating to which of the following transaction cycles? Revenue. Prior to the audit, an auditor usually discusses the general audit strategy with the client's management. Which of the following details do management and the auditor usually agree upon at this time? The schedules and analyses that the client's staff should prepare. Which of the following statements is correct with respect to fraud encountered during an audit engagement of a nonissuer? It is often difficult to detect fraudulent intent in matters involving accounting estimates and the application of accounting principles. Which of the following is a misstatement arising from fraud or an error as defined by the auditing standards? Selecting an accounting policy that the auditor considers inappropriate. How would an auditor of a nonissuer most appropriately respond to a heightened assessed risk of material misstatement? By assigning more experienced staff or those with specialized skills to high-risk areas. An issuer client who disagrees with the independent auditor on a significant matter affecting its financial statements has several courses of action. Which of the following courses of action would be inappropriate? Appeal to the FASB to review the significant matter. Each of the following is a type of known misstatement, except Differences between management and the auditor's judgment regarding estimates. Analytical procedures used in planning an audit should focus on Enhancing the auditor's understanding of the client's business. An internal auditor's work would most likely affect the nature, timing, and extent of an independent auditor's auditing procedures when the internal auditor's work relates to assertions about the Existence of fixed asset additions. A client maintains perpetual inventory records in both quantities and dollars. If the assessment of the risks of material misstatement is high, an auditor will probably Request the client to schedule the physical inventory count at the end of the year. For certain controls, such as assignment of authority and responsibility, documentary evidence may not exist. An auditor would most likely test the controls by Observation and inquiry. A nonissuer audit client failed to maintain copies of its procedures manuals and organizational flowcharts. What should the auditor do in an audit of financial statements? Adopt a substantive audit approach. To test the effectiveness of controls, an auditor ordinarily selects from a variety of techniques, including Reperformance and observation. Which of the following would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement? Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years. Which of the following procedures would an auditor most likely perform in the planning stage of an audit? Make a preliminary judgment about materiality. Prior to the audit, an auditor usually discusses the overall audit strategy with the client's management. Which of the following matters do the auditor and management agree upon at this time? The coordination of the assistance of the client's personnel in data preparation. The acceptable level of detection risk is inversely related to the Assurance provided by substantive procedures. Which of the following statements best describes why an auditor would use only substantive procedures to evaluate specific relevant assertions and risks? Testing the operating effectiveness of the relevant controls would not be efficient. The independent auditor should understand the internal audit function as it relates to internal control because The work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures. An auditor most likely modifies the opinion if the entity's financial statements include a note on related party transactions Stating without substantiation that a particular related party transaction occurred on terms equivalent to those that would have prevailed in an arm's-length transaction. Which of the following factors does a CPA ordinarily consider in the planning stage of an audit engagement? Both I and II. A senior auditor conducted a dual-purpose test on a client's invoice to determine whether the invoice was approved and to ascertain the amount and other terms of the invoice. Which of the following lists two tests that the auditor performed? Tests of controls and tests of details. Which of the following would not necessarily be a related party transaction? A sale to another corporation with a similar name. Which of the following statements is correct regarding an independent auditor's reliance on a client's internal audit staff? An independent auditor should assess the organizational status of the director of internal audit.
Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely will significantly increase opportunities for fraudulent financial reporting when Management is dominated by one individual who is also a shareholder. If an auditor is obtaining an understanding of an issuer's information and communication component of internal control, which of the following factors should the auditor assess? The classes of transactions in the issuer's operations that are significant to the issuer's financial statements. An auditor is required to attempt communication with the predecessor auditor prior to Accepting the engagement. Which of the following analytical procedures most likely would be used during the planning stage of an audit? Comparing current-year to prior-year sales volumes. A document in an auditor's audit documentation includes the following statement: "Our audit is subject to the inherent risk that material misstatements, if they exist, will not be detected." The above passage is most likely from a(n) Engagement letter. Which of the following is least likely to indicate the need to increase the assurance provided by substantive testing? A decrease in the assessed inherent risk. Because of the risk of material misstatement due to fraud, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of Professional skepticism. Which of the following statements concerning the auditor's use of the work of an auditor's external specialist is true? The auditor's specialist should observe the same confidentiality requirements as the auditor. An auditor is required to establish an understanding in writing with a client regarding the services to be performed for each engagement. This understanding generally includes The auditor's responsibility for ensuring that the audit committee is aware of any significant deficiencies or material weaknesses in control that come to the auditor's attention. When auditing related party transactions, an auditor places primary emphasis on Assessing the risks of material misstatement of related party transactions. Which of the following statements is correct concerning an auditor's use of the work of an actuary in assessing a client's pension obligations? The auditor is required to understand the objectives and scope of the actuary's work. In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following? The susceptibility of a financial statement assertion to a material misstatement before consideration of related controls. A basic premise underlying analytical procedures is that Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.
Providing more supervision during an audit of a nonissuer in response to assessed risks of material misstatement at the financial statement level is an example of An overall response. Which of the following circumstances would most likely cause an auditor to suspect that fraud exists in a client's financial statements? Significantly fewer responses to confirmation requests are received than expected. Which of the following statements most likely would be included in an engagement letter from an auditor to a client? The CPA firm will involve information technology specialists in the performance of the audit. Which of the following procedures will an auditor most likely perform when evaluating audit evidence at the completion of the audit? Consider whether the results of audit procedures affect the assessment of the identified risks of material misstatement due to fraud. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality for the financial statements as a whole? The entity's year-to-date financial results and position. Disclosure of possible fraud to parties other than the client's senior management and those charged with governance ordinarily is not part of an auditor's responsibility. However, to which of the following outside parties may a duty to disclose possible fraud exist? I, II, and III. Which of the following tests of controls most likely will help assure an auditor that goods shipped are properly billed? Examine shipping documents for matching sales invoices. The portion of the audit plan for a financial statement audit that describes further audit procedures usually cannot be developed until the Understanding of the entity's internal control has been completed. If the auditors plan to use the work of the internal auditors to obtain audit evidence or to provide direct assistance, they should assess the internal auditors' Competence and objectivity. Which of the following matters does an auditor usually include in the engagement letter? Arrangements regarding fees and billing. Analytical procedures used as risk assessment procedures should focus on Enhancing the auditor's understanding of the entity and its environment. Tests of controls are concerned primarily with each of the following questions except Were the controls approved by the board of directors? After testing a client's internal control activities, an auditor discovers a number of significant deficiencies in the operation of a client's internal controls. Under these circumstances, the auditor most likely would Increase the assessment of control risk and increase the extent of substantive tests. Which of the following factors most likely would cause a CPA to not accept a new audit engagement? The prospective client is unwilling to make all financial records available to the CPA. An auditor who uses the work of an auditor's external specialist may refer to the specialist in the auditor's report if the Reference is needed for an understanding of a modification of the opinion. Which of the following auditor concerns usually is so serious that the auditor might conclude that a financial statement audit cannot be conducted? The integrity of the entity's management is suspect. Because an audit in accordance with generally accepted auditing standards is influenced by the possibility of material errors, the auditor should conduct the audit with an attitude of Professional skepticism. After identifying related party transactions, an auditor most likely would Determine whether the transactions were approved by the board of directors or other appropriate officials. In an audit of a nonissuer's financial statements, projected misstatement is An auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample. Which of the following circumstances most likely would cause an auditor to suspect that there are material misstatements in an entity's financial statements? Supporting accounting records and files that should be readily available are not produced promptly when requested. Which of the following is a false statement about materiality? An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements. Which of the following is correct regarding the communication between successor and predecessor auditors? The successor auditor should request permission from the prospective client to make an inquiry of the predecessor auditor. Which of the following auditing procedures most likely would assist an auditor in identifying related party transactions? Reviewing accounting records for nonrecurring transactions recognized near the balance sheet date. Which of the following factors most likely would cause a CPA to decline to accept a new audit engagement? Management is unwilling to permit inquiry of its legal counsel. An auditor would be most likely to consider modifying an otherwise unmodified opinion if the client's financial statements include a note on related party transactions Representing without substantiation that certain related party transactions were consummated on terms equivalent to those obtainable in transactions with unrelated parties. Which of the following would not be considered an analytical procedure? Projecting an error rate by comparing the results of a statistical sample with the actual population characteristics. Before accepting an audit engagement, an auditor should make specific inquiries of the predecessor auditor regarding Disagreements the predecessor had with the client concerning auditing procedures and accounting principles. In developing an audit plan, an auditor should Perform risk assessment procedures. The auditor should establish an overall audit strategy. Which one of the following statements is most consistent with this requirement? The auditor should plan the audit so that it will be performed effectively. 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? Unrecorded sales. Moor, CPA, discovers a likely fraud during an audit but concludes that its effects, if any, could not be so material as to affect the opinion. Moor most likely should Report the finding to the appropriate representatives of the client with the recommendation that it be pursued to a conclusion. An auditor assesses the risks of material misstatement because they Affect the level of detection risk that the auditor may accept. When assessing the risks of material misstatement at a low level, an auditor is required to document the auditor's Yes Which of the following is ordinarily designed to detect possible material dollar misstatements in the financial statements? Analytical procedures. A management's specialist most likely is useful to Assist the client in preparing the financial statements. An auditor uses the assessed risks of material misstatement to Determine the acceptable level of detection risk for financial statement assertions. Which of the following circumstances is most likely to cause an auditor to change an assessment of the risk of material misstatement of the financial statements due to fraud? Unusual discrepancies between the entity's records and confirmation replies. An auditor's response to the assessment of the risks of material misstatement due to fraud takes various forms. A response with an overall effect on the conduct of the audit is to Consider whether management's applications of accounting principles indicates a bias. Audit evidence concerning undocumented monitoring controls ordinarily is best obtained by Observing the employees as they apply controls. An auditor may be able to reduce audit risk to an acceptably low level for some relevant assertions by Performing analytical procedures. An auditor wishes to evaluate the design and perform tests of controls over a client's cash disbursements procedures. If the controls leave no audit trail of documentary evidence, the auditor most likely will test the procedures by Observation and inquiry. Which of the following most likely would indicate the existence of related parties? Borrowing money at an interest rate significantly below the market rate. An auditor should design the audit plan to Implement the audit strategy. In which of the following circumstances is an auditor most likely to rely on work done by internal auditors? For financial statement amounts judged by the auditor to require little or no subjectively evaluated audit evidence. Which of the following procedures would an auditor most likely perform in planning a financial statement audit? Comparing the financial statements with anticipated results. After identifying a significant related party transaction outside the entity's normal course of business, an auditor should Evaluate the business purpose of the transaction. Buldger Retailing, Inc., has an internal auditing staff of four full-time auditors. The auditor has determined that the internal auditors are competent and objective. The auditor may share which of the following responsibilities with Buldger's internal auditors? Performing substantive procedures. Inherent risk and control risk differ from detection risk in which of the following ways? Inherent risk and control risk exist independently of the audit. Based on new information gained during an audit of a nonissuer, an auditor determines that it is necessary to modify materiality for the financial statements as a whole. In this circumstance, which of the following statements is accurate? Materiality levels for particular classes of transactions, account balances, or disclosures might also need to be revised. In connection with the audit of financial statements by an auditor, the client suggests that members of the internal audit staff be used to minimize audit costs. For which of the following tasks may the auditor most appropriately request direct assistance from the internal audit staff? Preparation of schedules for negative accounts receivable responses. Audit risk at the assertion level consists of inherent risk, control risk, and detection risk. Which of the following statements is true? Cash has a greater inherent risk than an inventory of coal because it is more susceptible to theft. An auditor reviews an audit client's accounting policies when considering which of the following matters? Understanding the entity and its environment, including its internal control. Determining that controls are operating effectively most likely involves Identifying specific controls relevant to specific assertions. Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting? An overly complex organizational structure involving unusual lines of authority. Which of the following events most likely indicates the existence of related parties? Making a loan without scheduled terms for repayment of the funds. When planning an audit, an auditor should Determine materiality for the financial statements as a whole. Which of the following is an analytical procedure? Comparing current-year balances to prior-year balances. 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 Tracing transactions through the system to determine whether procedures are being applied as prescribed. An auditor compares this year's revenues and expenses with those of the prior year and investigates all changes exceeding 10%. By this procedure the auditor would be most likely to learn that The client changed its capitalization policy for small tools this year. An auditor is planning an audit engagement for a new client in a business that is unfamiliar to the auditor. Which of the following would be the least useful source of information for the auditor during the preliminary planning stage, when the auditor is trying to obtain a general understanding of audit problems that might be encountered? Results of performing substantive procedures. Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement? Management's disregard of its responsibility to maintain an adequate internal control environment. Which of the following circumstances would an auditor most likely consider a risk factor relating to misstatements arising from fraudulent financial reporting? Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices. Which of the following actions should the auditor take in response to discovering a deviation from the prescribed control? Make inquiries to understand the potential consequence of the deviation. Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit? Determining the extent of involvement of the client's internal auditors. An auditor examines a sample of copies of December and January sales invoices for the initials of the person who verified the quantitative data. The purpose is to determine the operating effectiveness of the verification. This audit procedure is an example of a Test of controls. In every audit, which of the following must be identified as a potential risk of material misstatement due to fraud? Management override of controls. As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should Consider the possibility of a misstatement in the financial statements. With respect to fraud or error, the auditor should assess the risk that fraud or error may cause a material misstatement of the financial statements and should design the audit to Provide reasonable assurance of detecting material fraud or error. In assessing the competence of an internal auditor, an independent CPA most likely would obtain information about the Quality of the internal auditor's documentation. Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatement arising from fraudulent financial reporting? Management had frequent disputes with the auditor on accounting matters. Which of the following procedures is considered a test of controls? An auditor interviews and observes appropriate personnel to determine segregation of duties. During the initial planning phase of an audit, a CPA most likely would Discuss the timing of the audit procedures with the client's management. Which of the following is an effective audit planning and control procedure that helps prevent misunderstandings and inefficient use of audit personnel? Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information. Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements? Management places substantial emphasis on meeting earnings projections. Which of the following audit procedures is an auditor most likely not to perform related to newly identified related party transactions outside the normal course of business? Understand the controls over authorization and approval of such transactions. An auditor's preliminary analysis of accounts receivable turnover revealed the following rates over these accounting
periods: Liberalization of credit policy. If an auditor wishes to decrease the acceptable level of audit risk, which of the following changes in the substantive procedures performed will not effectively provide greater assurance? A change in the timing of substantive procedures from year-end to interim dates. An auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's No Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was Post, CPA, who has been notified by Monday that Post's services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post? Hill, the auditor. In developing written audit plans, an auditor should design specific audit procedures that relate primarily to the Financial statement assertions. To obtain evidence about the operating effectiveness of controls, an auditor selects tests from a variety of methods, including Inquiries. An auditor of a nonissuer is most likely to conclude that a misstatement identified during an audit that is below the quantitative materiality limit is qualitatively material if it Changes the company's operating results from a net loss to a net income. An auditor searching for related party transactions should obtain an understanding of each subsidiary's relationship to the total entity because The business structure may be deliberately designed to obscure related party transactions. What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a nonissuer? Ratio analysis. Tests of controls in a financial statement audit are least likely to be omitted with regard to Accounts representing many transactions. For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective? No Which of the following circumstances is most likely to cause an auditor to consider whether a material misstatement exists? Transactions selected for testing are not supported by proper documentation. Detection risk differs from both control risk and inherent risk in that detection risk Can be changed at the auditor's discretion. The risks of material misstatement (RMMs) should be assessed in terms of Financial statement assertions. Ordinarily, the predecessor auditor permits the auditor to review the predecessor's audit documentation relating to Yes After obtaining an understanding of internal control in a financial statement audit, an auditor has concluded that it is well designed and is operating effectively. Under these circumstances, the auditor would most likely Not increase the extent of substantive procedures. When a management's specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialist's work is acceptable if The auditor conducted the same audit tests and procedures as would have been applicable if the client employees took the physical inventory. In using the work of an auditor's external specialist, an agreement should exist between the auditor and the specialist as to the nature of the specialist's work. This agreement most likely should include The applicability of the same confidentiality requirements to the auditor and the specialist. An internal auditor would least likely provide direct assistance to the auditor in Evaluating accounting estimates. For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent Yes Which of the following elements underlies the development of an overall audit strategy? Materiality and audit risk. The audit plan usually cannot be finalized until the Understanding of the entity and its environment has been completed. Upon discovering fraudulent data in a client's tax return that the client would not correct, a CPA withdraws from the engagement. How should the CPA respond if asked by the successor CPA why the relationship was terminated? "I suggest you get the client's permission for us to discuss all matters freely." Analytical procedures can best be categorized as Substantive procedures. To obtain an understanding of a continuing client in planning an audit, an auditor most likely would Read internal audit reports. Early appointment of the auditor enables preliminary work to be performed by the auditor. This benefits the client because it permits the audit to be performed in A more efficient manner. With respect to the auditor's planning of a year-end audit, which of the following statements is always true? It is an acceptable practice to carry out part of the audit at interim dates. One reason the independent auditor applies analytical procedures with regard to the client's operations is to identify Unusual transactions. Analytical procedures used to form an overall conclusion of an audit generally would include Considering the adequacy of the evidence gathered in response to unexpected balances identified in planning. Which of the following events most likely would indicate the existence of related parties? Selling real estate at a price significantly different from appraised value. Which of the following is considered a fraudulent activity? Misappropriation of assets. Which of the following auditing procedures most likely would assist an auditor in identifying related party transactions? Reviewing confirmations of loans receivable and payable. A CPA wishes to determine how various issuers have complied with the disclosure requirements of a new financial accounting standard. Which of the following information sources would the CPA most likely consult for this information? AICPA Accounting Trends and Techniques. In assessing the competence of a client's internal auditor, an auditor most likely would consider the Internal auditor's compliance with professional internal auditing standards. The engagement partner responsible for coordinating the field work usually schedules a pre-audit conference with the audit team primarily to Give guidance to the staff regarding both technical and personnel aspects of the audit. Analytical procedures are most appropriate when testing which of the following types of transactions? Operating expense transactions. During the consideration of fraud in a financial statement audit, the auditor should identify and assess risks that may result in material misstatements due to fraud. This assessment Is based on evaluating whether the entity's related controls have been suitably designed and implemented. While performing interim audit procedures on accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate? Use more experienced audit team members to perform year-end testing. Which of the following circumstances most likely will cause an auditor to consider whether material misstatements due to fraud exist in an entity's financial statements? Transactions selected for testing are not supported by proper documentation. Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? Payroll expense. Which of the following procedures most likely could assist an auditor in identifying related party transactions? Reviewing confirmations of compensating balance arrangements. Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? Interest expense. The objective of analytical procedures performed as risk assessment procedures is to Enhance the auditor's understanding of the client's business. An auditor's analytical procedures most likely would be facilitated if the entity Uses a standard cost system that produces variance reports. Three conditions are generally present in the client's organization when fraud occurs. Those conditions include each of the following except a(n) Professional skepticism about the likelihood of fraud. Which of the following procedures is the auditor most likely to perform after accepting an initial audit engagement? Tour the client's facilities. Which of the following audit risk components may be assessed in nonquantitative terms? es In assessing the competence and objectivity of an entity's internal auditor, an independent auditor would least likely consider information obtained from The results of analytical procedures. Which of the following statements is correct concerning analytical procedures used in planning an audit engagement? They usually use financial and nonfinancial data aggregated at a high level. The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the Engagement letter. The ultimate purpose of understanding the entity and its environment and assessing the risks of material misstatement is to contribute to the auditor's assessment of the risk that Material misstatements may exist in the financial statements. When assessing internal auditors' objectivity, an auditor should Consider the policies that prohibit the internal auditors from auditing areas where they were recently assigned. 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 Perform risk assessment procedures. Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected? It is unlikely that sufficient appropriate audit evidence is available to support an opinion on 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 greater for Madison than for Nassau. This is an example of the auditor's concept of Materiality. Which of the following is an analytical procedure that an auditor most likely would perform when planning an audit? Comparing the current-year account balances for conformity with predictable patterns. An auditor's engagement letter most likely would include a statement regarding Management's responsibility to provide certain written representations to the auditor. Which of the following steps should be performed first in applying analytical procedures? Develop an expectation of a balance or ratio by using relationships that are expected to exist. As the acceptable level of detection risk decreases, an auditor may change the Nature of substantive procedures from a less effective to a more effective procedure. Inherent risk and control risk differ from detection risk in that inherent risk and control risk are Functions of the client and its environment, but detection risk is not. Which of the following would be least likely to be comparable between similar corporations in the same industry line of business? Earnings per share. Which of the following is the most reliable analytical approach to verification of the year-end financial statement balances of a wholesale business? Verify commission expense by multiplying sales revenue by the company's standard commission rate. The understanding with the client regarding a financial statement audit generally includes which of the following matters? The responsibilities of the auditor. When assessing the competence of the internal auditors, an auditor should obtain information about the Quality of the internal auditors' working paper documentation. An auditor may refer to and identify an auditor's external specialist in the auditor's report if the Auditor expresses a disclaimer of an opinion as a result of the specialist's findings. After obtaining an understanding of internal control for the audit of a nonissuer's financial statements, an auditor decided not to perform tests of controls. The auditor most likely decided that Performing only substantive procedures would effectively reduce audit risk to an acceptably low level. Which of the following would be least likely to suggest to an auditor that the client's management may have overridden internal control? Differences are always disclosed on a computer exception report. An auditor should make specific and reasonable inquiries of the predecessor auditor regarding the predecessor's Understanding of the reasons for the change in auditors. The work of internal auditors may affect the independent
auditor's I, II, and III. As the acceptable level of audit risk decreases, an auditor may Postpone the planned timing of substantive tests from interim dates to the year end. An auditor who is engaged in obtaining information to identify the risks of material misstatement due to fraud should perform which procedures? I and II only. The objective of performing analytical procedures in planning an audit is to identify the existence of Unusual transactions and events. Analytical procedures reveal significant unexpected differences between recorded amounts and the expectations developed by the auditor. If management is unable to provide an acceptable explanation, the auditor should Perform additional audit procedures to investigate the matter further. An auditor's document includes the following statement: An engagement letter. In using the work of an auditor's external specialist, an auditor may refer to the specialist in the auditor's report if, as a result of the specialist's findings, the auditor Modifies the opinion because of a material misstatement with effects that are not pervasive. Which of the following procedures would most likely assist an auditor in identifying related party transactions? Review the minutes of the meetings of the board of directors and its committees. Prior to, or in conjunction with, the information-gathering procedures for an audit, audit team members should discuss the potential for material misstatement due to fraud. Which of the following best characterizes the mind-set that the audit team should maintain during this discussion? Questioning. Which of the following courses of action is the most appropriate if an auditor concludes that there is a high risk of material misstatement? Select more effective substantive procedures. In assessing whether to accept a client for an audit engagement, a CPA should consider the Yes In comparison with the detailed audit plan of the independent auditor who is engaged to audit the financial statements of a large publicly held company, the audit client's comprehensive internal audit plan is More detailed and covers areas that normally are not considered by the independent auditor. In assessing the competence of internal auditors, an independent CPA most likely would obtain information about the Quality of the internal auditors' working paper documentation. If accounts receivable turned over 7.1 times in Year 1 as compared with only 5.6 times in Year 2, it is possible that there were Fictitious sales in Year 2. Which of the following parties should an auditor notify first when discovering an immaterial fraud is committed by an accounting clerk? An appropriate level of management. An auditor's decision whether to apply analytical procedures as substantive procedures usually is determined by the Precision and reliability of the data used to develop expectations. Which of the following characteristics most likely will heighten an auditor's concern about the risk of material misstatements due to fraud in an entity's financial statements? The entity's industry is experiencing declining customer demand. An auditor most likely obtains an understanding of a new client to Identify areas of audit emphasis. Samples to test controls are intended to provide a basis for an auditor to conclude whether The controls are operating effectively. An auditor is reviewing changes in sales for a product. Sales volume (quantity) declined 10% while sales price increased by 25% for the product. Prior year sales were $75,000. The auditor expects this year's sales for the product to be approximately $84,375 In assessing the objectivity of internal auditors, an independent auditor should Determine the organizational level to which the internal auditors report. A primary objective of analytical procedures used to form an overall conclusion is to Determine whether the financial statements are consistent with the auditor's understanding. Which of the following statements is true about related party transactions? The auditor should consider whether an identified related party transaction outside the normal course of business is appropriately accounted for and disclosed. Which of the following is not considered an auditor's specialist? Internal auditor. When one auditor succeeds another, the auditor should request the Client to authorize the predecessor auditor to allow a review of the predecessor auditor's audit documentation. In an environment that is highly automated, an auditor determines that it is not possible to obtain sufficient appropriate audit evidence solely by performing substantive procedures on transactions. Under these circumstances, the auditor most likely would Perform tests of controls. A corporate balance sheet indicates that one of the corporate assets is a patent. An auditor will most likely obtain evidence regarding the continuing validity and existence of this patent by obtaining a written representation from A patent attorney. Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit? Square footage of selling space. On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed risks of material misstatement from those originally planned. To achieve an overall audit risk that is substantially the same as the planned audit risk, the auditor would Decrease detection risk. An auditor who uses the work of an auditor's external specialist may refer to and identify the specialist in the auditor's report if the Auditor expresses a qualified opinion or an adverse opinion related to the work of the specialist. Which of the following matters generally is included in an auditor's engagement letter? Management's responsibility for the entity's compliance with laws and regulations. The auditor should perform tests of controls when the auditor's risk assessment includes an expectation Of the operating effectiveness of internal control. Analytical procedures used as risk assessment procedures should focus on Enhancing the auditor's understanding of the transactions and events that have occurred since the last audit. Before accepting an engagement to audit a new client, an auditor is required to Make inquiries of the predecessor auditor after obtaining the consent of the prospective client. Although planning continues throughout the audit, it initially involves Developing an overall audit strategy. When assessing an internal auditor's competence, an auditor ordinarily obtains information about all of the following except Access to information about related parties. When assessing the internal auditors' competence, the auditor should obtain information about the Educational background and professional certification of the internal auditors. For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective? No Audit plans should be designed so that The audit evidence gathered supports the auditor's conclusions. An auditor may decide to perform only substantive procedures for certain assertions because the auditor believes Controls are not relevant to the assertions. Which of the following events least likely would indicate the existence of related party transactions? Writing off obsolete inventory to net realizable value just before year end. The existence of a related party transaction may be indicated when another entity Absorbs expenses of the corporation. Miller Retailing, Inc., maintains a staff of three full-time internal auditors. The independent auditor has found that they are competent and objective. Moreover, the work of the internal auditors is relevant to the audit, and it is efficient to consider how that work may affect the audit. The independent auditor most likely will Nevertheless need to make direct tests of assertions about material financial statement amounts for which the risks of material misstatement are high. Which of the following is an analytical procedure that an auditor most likely would perform when planning an audit? Comparing current-year balances to budgeted balances. Which of the following statements best describes an auditor's responsibility to detect fraud or error? An auditor should design an audit to provide reasonable assurance of detecting fraud or error that is material to the financial statements. During an audit of a nonissuer's financial statements, an auditor should perform tests of controls to obtain sufficient appropriate audit evidence about the operating effectiveness of relevant controls if Substantive procedures alone cannot provide sufficient appropriate audit evidence. Which of the following matters relating to an entity's operations would an auditor most likely consider as an inherent risk factor in planning an audit? The entity enters into derivative transactions as hedges. Which of the following is required documentation in an audit in accordance with auditing standards? An audit plan documenting the procedures to be used to reduce audit risk. Inherent risk and control risk differ from detection risk in that they Exist independently of the financial statement audit. For all audits of financial statements made in accordance with generally accepted auditing standards, the auditor should apply analytical procedures to some extent as Yes Which of the following is true related to the auditor's consideration of controls? Misstatements detected by the auditor's substantive procedures should be considered when testing the effectiveness of related controls. The ultimate purpose of assessing control risk in a financial statement audit is to contribute to the auditor's evaluation of the risk that Material misstatements may exist in the financial statements. Which result of an analytical procedure suggests the existence of obsolete merchandise? Decrease in the inventory turnover rate. Which of the following would be considered an analytical procedure? Developing the current year's expected net sales based on the entity's sales trend of prior years. Which of the following factors has the least influence on an auditor's consideration of the reliability of data for purposes of analytical procedures? Whether the data were processed in a computer system or in a manual accounting system. In performing tests of controls, the auditor will normally find that The rate of deviations in the sample exceeds the rate of error in the accounting records. After gaining an understanding of a client's computer processing internal control, a financial statement auditor may decide not to test the effectiveness of the computer processing control procedures. Which of the following is not a valid reason for choosing to omit tests of controls? The assessment of the risks of material misstatement permits the auditor to rely on the controls. Which of the following factors would most likely cause an auditor not to accept a new audit engagement? Concluding that the entity's management probably lacks integrity. If the auditor intends to rely on the operating effectiveness of relevant controls, which test of controls is necessary to obtain sufficient appropriate evidence? Inquiry. In general, fraudulent financial reporting perpetrated by which of the following are most difficult to detect? Controller. Which of the following is a step in an auditor's decision to rely on internal controls? Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls. An auditor referred to the findings of an auditor's external specialist in the auditor's report. This may be an appropriate reporting practice if the Auditor's report contains a qualified opinion. Regardless of the assessed risks of material misstatement, an auditor should perform some
Substantive procedures to restrict detection risk for significant transaction classes. Which of the following ultimately determines the sufficiency and appropriateness of audit evidence to support the auditor's conclusions? Professional judgment. Which of the following statements describes why a properly planned and performed audit may not detect a material misstatement due to fraud? Audit procedures that are effective for detecting an error may be ineffective for detecting fraud that is concealed through collusion. Which of the following is an auditor least likely to perform in planning a financial statement audit? Selecting a sample of vendors' invoices for comparison with receiving reports. To obtain evidence about the effectiveness of controls, an auditor ordinarily selects tests from a variety of methods, including Reperformance. Certain individuals may have an attitude, character, or set of values that permit them to rationalize fraud. Moreover, individuals may have an incentive or be under pressure to commit fraud, or circumstances may provide an opportunity. The auditor's concern about the risk of material misstatements due to fraud is least likely to be increased if management Consists of many individuals that make operating and financing decisions. What is the most likely course of action that an auditor would take after determining that performing substantive procedures on inventory will take less time than performing tests of controls? Perform only substantive procedures on inventory. In a financial statement audit, substantial consideration must be given to potential fraud. The conditions for fraud ordinarily include The ability to rationalize commission of fraud. Which of the following procedures would an auditor most likely perform in planning a financial statement audit? Performing analytical procedures to identify areas that may represent specific risks. A client decides not to correct misstatements communicated by the auditor that collectively are not material and wants the auditor to issue the report based on the uncorrected numbers. Which of the following statements is correct regarding the financial statement presentation? The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements. Which of the following is an analytical procedure that an auditor most likely uses to form an overall conclusion? Reading the financial statements and considering whether there are any unusual or unexpected balances that were not previously identified. In addition to descriptions of the nature, timing, and extent of planned risk assessment procedures and planned further audit procedures, which of the following additional pieces of information should be documented in the audit plan? Other audit procedures to be performed to comply with generally accepted auditing standards. Financial statement audit plans usually should be developed After the auditor has established the overall audit strategy. Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable. In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to be a misstatement that Involves an estimate. During an audit, an internal auditor may provide direct assistance to an independent CPA in Yes Management's emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when A significant portion of management compensation is represented by stock options. In which of the following instances would it be appropriate for the auditor to refer to the work of an appraiser in the auditor's report? An adverse opinion is expressed based on a difference of opinion between the client and the auditor's external specialist about the value of certain assets. An auditor may compensate for a high assessed risk of material misstatement by Increasing the extent of substantive analytical procedures. Which of the following statements is correct concerning an auditor's responsibility to report fraud? The disclosure of fraudulent activities to parties other than the client's senior management and its audit committee is not ordinarily part of the auditor's responsibility. Which approach to planning, performing, supervising, reviewing, and documenting internal audit activities distinguishes it from other monitoring controls that may be performed within the entity? A systematic and disciplined approach. When an auditor increases the assessment of the risks of material misstatement because certain controls were determined to be ineffective, the auditor will most likely increase the Extent of tests of details. Which of the following types of evidence would an auditor most likely consider to determine whether internal controls are operating effectively? A questionnaire completed by an employee in the receiving department concerning her duties and responsibilities. In performing interviews and examining documents related to preliminary work in a financial statement audit of a nonissuer, an auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result? Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit. Transactions indicative of the existence of related parties include all of the following except Selling real estate at a price significantly different from the carrying amount. In obtaining written representations from management, materiality limits ordinarily would apply to representations related to Amounts concerning related party transactions. When performing analytical procedures as risk assessment procedures, the auditor most likely would develop expectations by reviewing which of the following sources of information? Unaudited information from internal quarterly reports. An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. The auditor most likely could have detected this irregularity by Performing analytical procedures designed to disclose differences from expectations. The audit risk against which the auditor and those who rely on his or 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 Material misstatements that occur will not be detected by the audit Analytical procedures are required for which of the following? Audit planning. After obtaining an understanding of internal control and assessing the risks of material misstatement in a financial statement audit, an auditor decided to perform tests of controls. The auditor most likely decided that It would be efficient to perform tests of controls that would result in a reduction in substantive procedures. If the predecessor auditor refuses to give the current auditor of a nonissuer access to the documentation, what should the current auditor do? Review the risk assessment of the opening balances of the financial statements. Which of the following statements would least likely appear in an auditor's engagement letter? After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement. The company being audited has an internal auditor that is both competent and objective. The auditor wants to assign tasks for the internal auditor to perform. Under these circumstances, the auditor may Allow the internal auditor to perform tests of internal controls. Audit plans are modified to suit the circumstances of particular engagements. A complete audit plan for an engagement usually should be developed After the auditor has obtained an understanding of existing internal control. Which of the following items tend to be the most predictable for purposes of analytical procedures applied as substantive procedures? Relationships involving income statement accounts. Which of the following is a definition of control risk? The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls. The independent auditor's plan for an audit in accordance with GAAS is influenced by the possibility of material misstatements. The auditor will therefore conduct the audit With an attitude of professional skepticism. Which of the following is a basic tool used by the auditor to control the audit work and review the progress of the audit? Audit plan. An auditor of a nonissuer should design tests of details to ensure that sufficient audit evidence supports which of the following? The planned level of assurance at the relevant assertion level. Which of the following procedures is not used in tests of controls over purchases? Confirm inventory held in public warehouses. The auditor should perform tests of controls when the auditor's assessment of the risks of material misstatement includes an expectation of the operating effectiveness of internal control or when Substantive procedures alone cannot provide sufficient appropriate audit evidence at the relevant assertion level. Which of the following statements is true about the use of the work of an auditor's specialist? The auditor should obtain an understanding of the methods and assumptions used by the specialist. 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? understanding of the client's internal control BAC. When assessing an internal auditor's objectivity, an auditor should Consider the organizational level to which the internal auditor reports. Auditing standards require that sufficient appropriate evidence be obtained by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. The substantive evidence required may be obtained, in part, through Analytical procedures. When the operating effectiveness of a control is not evidenced by written documentation, an auditor should obtain evidence about the control's effectiveness by Inquiry and other procedures such as observation. Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should not be accepted? It is unlikely that sufficient appropriate evidence is available to support an opinion on the financial statements. An auditor's inquiries of the predecessor auditor should include questions regarding The predecessor's understanding as to the reasons for the change in auditors. When the regular audit leading to an opinion on financial statements discloses specific circumstances that create suspicion that fraud may exist, and the auditor concludes that the results of such fraud, if any, could not be so material as to affect the opinion, (s)he should Refer the matter to the appropriate representatives of the client with the recommendation that it be pursued to a conclusion. In an audit based on International Standards on Auditing (ISAs), a successor auditor would normally become satisfied with opening balances by Reviewing the predecessor's working papers. Analytical procedures used to form an overall audit conclusion generally include Considering unusual or unexpected account balances that were not previously identified. Audit planning for an initial audit most likely includes Performing procedures involving opening balances. The existence of audit risk is recognized by the statement in the auditor's report that the Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement. An auditor intends to use the work of an actuary. Under these circumstances, the auditor Should assess the actuary's competence and objectivity. Which of the following ratios would be the least useful in reviewing the overall profitability of a manufacturing company? Net income to working capital. Which of the following most likely should be included as part of an auditor's tests of controls? Inspection. Which of the following types of risk increases when an auditor performs substantive analytical audit procedures for financial statement accounts at an interim date? Detection. 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 Detection risk. Before accepting an engagement to audit a new client, a CPA is required to obtain The prospective client's consent to make inquiries of the predecessor, if any. Which of the following factors most likely would influence an auditor's determination of the auditability of an entity's financial statements? The destruction of the accounting records. 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 Additional audit procedures are required. If interim substantive procedures for an account identified no exceptions, which of the following would the auditor not perform on that account at year end? Tests of details for the entire year under audit. Which of the following statements best describes an auditor's responsibility to detect fraud or error? The auditor should assess the risk that fraud or error may cause the financial statements to contain material misstatements and design the audit to provide reasonable assurance of detecting material errors and fraud. Which of the following procedures would a CPA most likely perform in the planning phase of a financial statement audit? Compare financial information with nonfinancial operating data. Which of the following most likely would cause an auditor to consider whether a client's financial statements contain material misstatements? The results of an analytical procedure disclose unexpected differences. Holding other planning considerations equal, a decrease in the amount of misstatements in a class of transactions that an auditor could tolerate most likely would cause the auditor to Perform the planned auditing procedures closer to the balance sheet date. An auditor's engagement letter most likely would include a statement that Limits the auditor's responsibility to detect fraud and error. Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements? Supporting records that should be readily available are frequently not produced when requested. 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? The auditor's judgment. Which of the following statements about analytical procedures is true? Analytical procedures alone may provide the appropriate level of assurance for some assertions. Which of the following is a true statement about an auditor's responsibility regarding consideration of fraud in a financial statement audit? The auditor should assess the risks of material misstatement due to fraud.
Which of the following procedures should an auditor most likely include in the planning of an audit of financial statements? Determining the need for specialized skills. Which of the following statements is true concerning analytical procedures? When expectations are more precise, significant variances are more likely to be due to misstatements. After audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up audit documentation review. This second review usually focuses on Whether the financial statements are consistent with the auditor's understanding of the entity. An auditor might consider the procedures performed by the internal auditors because They are employees whose work may affect the nature, timing, and extent of audit 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? To assist the auditor to accurately interpret information obtained during an audit. Which of the following types of risks most likely would increase if accounts receivable are confirmed 3 months before year end? Detection. When numerous property and equipment transactions occur during the year, an auditor who assesses the risks of material misstatement at a low level usually performs
Tests of controls and limited tests of current-year property and equipment transactions. What is the primary objective of the fraud brainstorming session? Assess the potential for material misstatement due to fraud. An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable. What type of audit procedure was performed? Analytical procedures. In auditing related party transactions, an auditor ordinarily places primary emphasis on The adequacy of the disclosure of the related party transactions. Which of the following must an auditor document with respect to the consideration of fraud in a financial statement audit? Reasons for not identifying improper revenue recognition as a fraud risk. Which of the following factors should an external auditor obtain updated information about when assessing an internal auditor's competence? Which one of the following statements is correct concerning the concept of materiality? Which one of the following statements is correct concerning the concept of materiality? Materiality is a matter of professional judgment. Which of the following would be considered an analytical procedure? Comparing inventory balances to recent sales activities. 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 Timing of inventory observation procedures to be performed. An auditor who decides not to rely on controls should Document the further audit procedures performed. Which of the following is a true statement about the required documentation in an audit performed in accordance with generally accepted auditing standards? A documented audit plan describing the necessary procedures to be performed is required. Hill Corporation has hired Jones, a CPA, to audit its financial statements for year end. Jones, when searching for related party transactions, should seek information to obtain an understanding about each of Hill's subsidiary's relationships because Hill's business structure might be designed in such a way as to deliberately obscure related party transactions. Which of the following factors most likely would cause an auditor to question the integrity of management? Audit tests detect material fraud that was known to management, but not disclosed to the auditor. Which of the following circumstances most likely would cause an auditor to believe that material misstatements may exist in an entity's financial statements? Accounts receivable confirmation requests yield significantly fewer responses than expected. An auditor is least likely to test controls that provide for Classification of revenue and expense transactions by product line. In every audit, the members of the audit team should discuss the potential for material misstatement due to fraud. This discussion Includes brainstorming about how assets can be misappropriated. 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 Auditor's determination about whether audit risk can be sufficiently reduced. An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that Unrealized gains from increases in the value of available-for-sale securities were recorded in the income account for trading securities. Which of the following procedures concerning accounts receivable is an auditor most likely to perform to obtain evidence in support of the effectiveness of controls? Observing an entity's employee prepare the schedule of past due accounts receivable. An auditor most likely would make specific inquiries of the predecessor auditor regarding Disagreements with management as to auditing procedures. Which of the following factors most likely would assist an auditor in assessing the objectivity of the internal auditor? The organizational status of the director of internal audit. Which of the following explanations best describes why an auditor may decide to reduce tests of details for a particular audit objective? Analytical procedures have revealed no unusual or unexpected results. 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Determining the extent of involvement of the client's internal audit function.
Which of the following procedures will an auditor most likely perform when evaluating audit evidence at the completion of the audit?Which of the following procedures will an auditor most likely perform when evaluating audit evidence at the completion of the audit? Consider whether the results of audit procedures affect the assessment of the identified risks of material misstatement due to fraud.
Which of the following procedures would an auditor most likely perform to test controls relating to?Which of the following audit procedures would an auditor most likely perform to test controls relating to management's assertion concerning the completeness of sales transactions? Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal.
Which of the following procedures would an auditor most likely perform for year end accounts?Which of the following procedures will an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests? Inspect the shipping records documenting the merchandise sold to the debtors. individual account balances are relatively large.
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Which of the following procedures would an auditor most likely perform in planning an audit of financial statements?
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