Question: When initiating communications with predecessor

> Which of the following is a device designed to help the audit team obtain evidence about the accounting and control activities of an audit client? a. A narrative memorandum describing the control system. b. An internal control questionnaire. c. A flowcha

> Which of the following elements of a system of quality control is related to firms receiving independence confirmations from its professionals with respect to clients? a. Acceptance and continuance of client relationships and specific engagements. b. Eng

> In most audits of large entities, control risk assessment contributes to audit efficiency, which means that a. The cost of substantive procedures will exceed the cost of control evaluation work. b. Auditors will be able to reduce the cost of substantive

> What is the difference between financial statement auditing and financial accounting?

> What is meant by the nature of the company, and why is it important to inherent risk assessment?

> How does an audit team use materiality on an audit engagement?

> To test the operating effectiveness of a control, an audit team might use a combination of each of the following tests except for a. Inquiry of client personnel. b. Observation of company operations. c. Confirmation of balances. d. Inspection of document

> According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal controls is to a. Determine whether the company’s controls are processing company data effectively. b. Det

> The most important fundamental component of an entity’s internal control is a. Effectiveness and efficiency of operations. b. People who operate the control system. c. Reliability of financial reporting. d. Compliance with applicable laws and regulations

> Once the auditor detects a control deficiency, which of the following steps must he or she take first? a. Perform tests of other controls related to the same assertion as the control deemed ineffective. b. Evaluate the severity of the deficiency on the a

> The auditor should assess control risk for each relevant assertion by evaluating the evidence obtained from all sources, including a. The auditor’s testing of controls for the audit of internal control on a public company. b. Misstatements detected durin

> Matters that could affect the necessary extent of testing for a control activity as it related to the degree of auditor reliance on a control activity would not include the following: a. The frequency of the performance of the control by the company duri

> When testing a control activity’s operating effectiveness, procedures the auditor performs to test operating effectiveness would likely include a. Inquiry of appropriate personnel. b. Reading over the company’s code of conduct. c. Reperformance of the co

> If the auditor plans to assess control risk at less than the maximum and rely on controls, and the nature, timing, and extent of further audit procedures are based on that lower assessment, the auditor must a. Obtain evidence that the controls selected f

> Which of the following recognizes that an audit conducted under generally accepted auditing standards may not detect all material misstatements? a. Absolute assurance. b. Professional judgment. c. Reliability of audit evidence. d. Reasonable assurance.

> Following is a list of various professional services. Identify each by its apparent characteristics as audit engagement, attestation engagement, or assurance engagement. Because audits are a subset of attestation engagements, which are a subset of assura

> Auditors’ understanding of the internal control in an entity provides information for a. Determining whether members of the audit team have the required competence and capabilities to perform the audit. b. Ascertaining the independence in mental attitude

> What is meant by material information in accounting and auditing?

> Why is it important for an auditor to carefully assess inherent risk on each audit engagement?

> Ray, the owner of a small entity, asked Holmes, CPA, to conduct an audit of the entity’s records. Ray told Holmes that the audit was to be completed in time to submit audited financial statements to a bank as part of a loan application. Holmes immediatel

> Which of the following information would be included in the introductory paragraph of the auditors’ report on internal control over financial reporting if the report is presented separately from the auditors’ report on the entity’s financial statements?

> If the auditors encounter a significant scope limitation in evaluating a public company’s internal control over financial reporting, which of the following types of opinions on the effectiveness of the company’s internal control over financial reporting

> Which of the following statements is not true with respect to the auditors’ report on internal control over financial reporting? a. The report will be dated as of the date of the financial statements. b. The report will express an opinion on the effectiv

> The purpose of separating the duties of hiring personnel and distributing payroll checks is to separate the a. Authorization of transactions from the custody of related assets. b. Operational responsibility from the record-keeping responsibility. c. Huma

> When completing the audit of internal controls for a public company, AS 2201 requires auditors to report on Management's Report on An Audit of Internal Control Internal Control a. No No b. Yes No C. No Yes d. Yes Yes

> What are the four major elements of the broad definition of assurance services?

> Which of the following does not accurately summarize auditors’ requirements regarding internal control? Public Entity Nonpublic Entity a. Understanding Yes Yes b. Documenting Yes Yes c. Evaluating control risk Yes Yes d. Test contr

> When completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends on a. Whether there is a reasonable possibility that the company’s controls will fail to prevent or detect a misstatement of an account b

> A material weakness is a situation in which a. It is probable that an immaterial financial statement misstatement would not be detected on a timely basis. b. There is a remote likelihood that a material misstatement would be detected on a timely basis. c

> Spreadsheet software would be most useful for which of the following audit activities? a. Testing internal controls over computerized accounting applications. b. Preparing an audit plan. c. Preparing a comparison of current-year expenses with those from

> What information would you expect to find in a permanent audit file?

> What advantages are derived from using CAATs in the financial statement audit? When answering this question please specifically consider performing when an auditor has to perform recalculations and selecting a sample of accounts receivable balances to be

> What are CAATs?

> Define audit trail. How could a computerized system’s transaction audit trail in an advanced system differ from one in a simple system or a manual system?

> What are the general characteristics of significant transactions that are typically computerized?

> When auditing an investment in another company, an auditor most likely would seek to conduct which audit procedure to help satisfy the valuation assertion? a. Inspect the stock certificates evidencing the investment. b. Examine the audited financial stat

> Where can an auditor find a client’s documentation of the accounting system?

> During an audit of a company’s cash balance on a company with operations in only one country, the auditor is most concerned with which management assertion? a. Existence. b. Rights and obligations. c. Valuation or allocation. d. Occurrence.

> Which of the following best describes the relationship between auditing and attestation engagements? a. Auditing is a subset of attestation engagements that focuses on the certification of financial statements. b. Attestation is a subset of auditing that

> When planning an audit engagement, what matters should be considered about a client’s computerized processing environment?

> In what ways are assurance services similar to attestation services (including audits of financial statements)?

> Identify and then briefly explain the eight general audit procedures used to gather evidence. Next, please provide an example for each of the eight procedures.

> A transaction-level internal control activity is best described as a. An action taken by auditors to obtain evidence. b. An action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions to eli

> Which of the following is not a benefit claimed for the practice of determining materiality in the initial planning stage of an audit? a. Being able to fine-tune the audit work for effectiveness and efficiency. b. Avoiding the problem of doing more work

> An auditor’s permanent file audit documentation most likely will contain a. Internal control analysis for the current year. b. The most recent engagement letter. c. Memoranda of conference with management. d. Excerpts of the corporate charter and bylaws.

> Audit documentation that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account for the year under audit will be found in the a. Current file audit documentation. b. Permanent file audit documentation. c.

> When planning an audit, which of the following is not a factor that affects auditors’ decisions about the quantity, type, and content of audit documentation? a. The auditors’ need to document compliance with generally accepted auditing standards. b. The

> Generally accepted auditing standards require that auditors always prepare and use a. A written planning memorandum explaining the auditors’ understanding of the client’s business. b. A written client consent to discuss audit matters with prospective aud

> The creation of the PCAOB by the Sarbanes–Oxley Act has affected both the standards-setting process and the periodic review of the quality of an audit firm’s work. Required: a. Identify the responsibilities of the AICPA, PCAOB, and SEC in the auditing s

> What are some major reasons for departing from the standard, unqualified report on internal control over financial reporting?

> Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement? a. Staff will need to be rescheduled to cover this new client. b. There will be a client-imposed scope limitation. c. The firm will have to hi

> The company being audited has an internal auditor who is both competent and objective. The independent auditor wants to assign tasks for the internal auditor to perform. Under these circumstances, the independent auditor may a. Allow the internal auditor

> The evidence considered most appropriate by auditors is best described as a. Internal documents such as sales invoice copies produced under conditions of strong internal control. b. Written representations made by the president of the entity. c. Document

> Which of the following statements is correct concerning analytical procedures used in planning an audit engagement? a. They often replace the tests of controls that are performed to assess control risk. b. They typically use financial and nonfinancial da

> Which of the following procedures would a CPA most likely perform in planning a financial statement audit? a. Make inquiries of the client’s lawyer concerning pending litigation. b. Perform cutoff tests of cash receipts and disbursements. c. Compare fina

> Which of the following would be considered an analytical procedure? a. Testing purchasing, shipping, and receiving cutoff activities. b. Comparing inventory balances to recent sales activities. c. Projecting the deviation rate of a statistical sample to

> When evaluating whether accounting estimates made by management are reasonable, the audit team would be most interested in which of the following? a. Key factors that are consistent with prior periods. b. Assumptions that are similar to industry guidelin

> With respect to the concept of materiality, which of the following statements is correct? a. Materiality depends only on the dollar amount of an item relative to other items in the financial statements. b. Materiality depends on the nature of a transacti

> Confirmations of accounts receivable provide evidence primarily about which two assertions? a. Completeness and valuation. b. Valuation and rights and obligations. c. Existence and rights and obligations. d. Existence and completeness.

> Refer to the website of the Public Company Accounting Oversight Board (PCAOB) (www. pcaobus.org), review the information under “Inspections,” and select the most current inspection report for one of the Big Four firms (Deloitte, EY, KPMG, and PwC). Requ

> When auditing the existence assertion for an asset, auditors proceed from the a. Financial statement amounts back to the potentially unrecorded items. b. Potentially unrecorded items forward to the financial statement amounts. c. General ledger back to t

> An audit plan contains a. Specifications of audit standards relevant to the financial statements being audited. b. Specifications of procedures the auditors believe appropriate for the financial statements under audit. c. Documentation of the assertions

> Describe the major components of the auditors’ standard, unqualified report on internal control over financial reporting.

> What is the purpose of risk assessment for an entity?

> Prior to accepting a new audit engagement, a public accounting firm should a. Attempt to contact the predecessor auditors. b. Evaluate the integrity of management. c. Assess the firm’s resources to ensure that they are sufficient to permit the firm to ac

> Which of the following procedures would most likely be performed during planning? a. Surprise counting of the client’s petty cash fund. b. Reporting internal control deficiencies to the audit committee. c. Performing a search for unrecorded liabilities.

> Which of the following communications is most likely to be written before the balance-sheet date? a. A report to the audit committee on the results of testing of internal control over cash receipts. b. Confirmation letters to vendors confirming the amoun

> Which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions before the balance-sheet date? a. Interviewing internal auditors about their reporting responsibilities. b. Reviewing acc

> When auditing Vandalay Jewelry, Costanza, CPA, was not familiar with the quality and cut of the company’s precious jewel inventory. To address this shortcoming, Costanza hired Benes, an expert in jewel valuation, to assist as an audit specialist for the

> An audit engagement letter should normally include which of the following matters of agreement between the auditor and the client? a. Schedules and analyses to be prepared by the client’s employees. b. Methods of statistical sampling the auditor will use

> A primary advantage of using CAATs in the audit of an advanced computerized system is that it enables the auditor to a. Substantiate the accuracy of data through self-checking digits and hash totals. b. Utilize the speed and accuracy of the computer. c.

> Firms auditing public entities are required to have periodic inspections conducted by the PCAOB. Required: a. What are the major characteristics of PCAOB inspections? b. What types of firms typically have PCAOB inspections? How frequently are these eval

> Which of the following is an advantage of computer-assisted audit techniques (CAATs)? a. All the CAATs programs are written in one computer language. b. The software can be used for audits of clients that use differing computer equipment and file formats

> Define professional skepticism and professional judgment. During what stages of the audit are auditors required to demonstrate these characteristics?

> Indicate whether each of the following audit procedures is a test of controls, a substantive test, or a dual-purpose test. Next, indicate the financial statement assertion most closely related to each audit procedure. Required: a. Vouch recorded sales

> Distinguish between independence in fact and independence in appearance. Can auditors be independent in fact yet not be perceived to be independent in appearance?

> What reports (other than auditors’ report) on internal control do audit teams give to an entity’s management, board of directors, or audit committee?

> Identify the three fundamental principles underlying GAAS.

> Identify the role of the following bodies in the auditing standards-setting process: (1) the AICPA; (2) the PCAOB; (3) the SEC.

> Define generally accepted auditing standards (GAAS). What is the purpose of GAAS?

> How frequently are firms required to have PCAOB inspections?

> Provide examples of procedures that firms have used to monitor their quality control policies and procedures.

> What factors should auditors consider in deciding whether to accept or continue the engagement with a particular client? What should firms do if they decide to withdraw from an engagement?

> Comment upon each of the following statements you heard in a conversation between two newly hired staff auditors. a. “Of course, I’m qualified to be assigned to this engagement. I have an accounting degree from a top university and was an honors graduate

> What is a system of quality control? Identify the six elements of a system of quality control.

> Your small business client, Phillip’s Computer Repair Shop, is experiencing financial difficulties and has to lay off one of its four employees in the accounting area. Phillip has asked you to determine what duties should be assigned to the three remaini

> What are the four types of audit opinions? What is the conclusion of each one?

> What is a financial reporting framework? How is it related to the auditors’ reporting responsibilities?

> How are the sufficiency and appropriateness of evidence related to detection risk?

> What options are available to the auditor for presenting reports on the entity’s financial statements and internal control over financial reporting?

> Distinguish between relevance and reliability as these concepts relate to audit evidence. How are relevance and reliability associated with the appropriateness of audit evidence?

> Define external, external-internal, and internal documentary evidence.

> What is the basic relationship between the effectiveness of the client’s internal control and the necessary effectiveness of substantive procedures?

> What is materiality? During what stages of the audit do auditors consider materiality?

> Define reasonable assurance. How does the audit team provide reasonable assurance in the engagement?

> Identify which of the major fundamental principles (responsibilities, performance, or reporting) is most closely related to each of the following: a. The need for auditors to consider their financial relationships with prospective clients. b. An auditor

> Auditors are required to obtain a sufficient understanding of each component of a client’s internal control. This understanding is used to assess control risk and plan the audit of the client’s financial statements. Required: a. For what purposes should

> The primary purpose for obtaining an understanding of the entity’s environment (including its internal control) in a financial statement audit is a. To determine the nature, timing, and extent of substantive procedures to be performed. b. To make consult

> Which of the following best demonstrates the concept of professional skepticism? a. Relying more extensively on external evidence rather than internal evidence. b. Focusing on items that have a more significant quantitative effect on the entity’s financi

> One of an accounting firm’s basic objectives is to provide professional services that conform to professional standards. Reasonable assurance of achieving this objective can be obtained by following a. Generally accepted auditing standards. b. Standards