Audit Committee and Evidence Sufficiency Quiz

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Why does the need for assurance services arise?

Because there is a potential bias in providing information (correct)

Since most financial statement users today have direct knowledge of a company's operations

As economic transactions are less complex than a decade ago

Due to the closeness between a user and the organization

What is required of a CPA before accepting an engagement to audit a new client?

Prospective client's consent to make inquiries of the predecessor auditor

Understanding of the prospective client's industry and business (correct)

Prospective client's signature on the engagement letter

Preliminary understanding of the prospective client's control environment

When does management philosophy and operating style significantly influence an entity's control environment?

When the audit committee actively oversees the financial reporting process

When the internal auditor reports directly to management

When accurate management job descriptions delineate specific duties

When management is dominated by one individual (correct)

Which of the following is considered adequate documentation in an internal control system?

Accounting clerk initials on the bank reconciliation Signup and view all the answers

What is the correct concern regarding an auditor's assessment of control risk?

Control risk affects detection risk Signup and view all the answers

What is the primary purpose of audit evidence?

To ensure reasonable assurance in financial statements Signup and view all the answers

What does the auditor gather evidential matter in order to do?

Form an opinion with respect to financial assertions Signup and view all the answers

What is the auditor’s responsibility for the detection of client’s noncompliance with laws and regulations compared to errors or fraud?

Greater than for errors or fraud Signup and view all the answers

Which term refers to the measure of the quantity of audit evidence considered necessary to achieve the predetermined acceptable level of detection risk?

Sufficiency Signup and view all the answers

What does 'reasonable assurance' mean in auditing?

Gathering of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole Signup and view all the answers

In auditing, what does the auditor aim to achieve by gathering evidential matter?

Minimize any errors or fraud in financial reporting Signup and view all the answers

When it comes to the auditor’s responsibility regarding compliance with laws and regulations, what is true?

Auditors should ensure compliance but only if it directly impacts financial assertions Signup and view all the answers

How should a change in accounting principles that has no material effect on the current year's financial statements but is expected to have a material effect in later years be disclosed?

A footnote to the financial statements in the first year in which the effect becomes substantial. Signup and view all the answers

Which function is considered the least function of the Board of Accountancy?

Preparation of the contents of the CPA licensure examinations and rating of the examination papers. Signup and view all the answers

What is NOT a step that an audit firm should take prior to accepting an audit engagement?

Determining the firm's ability to use due professional care. Signup and view all the answers

What specific inquiries should a successor auditor make of a predecessor auditor before accepting an audit engagement?

Opinion of any subsequent events occurring since the predecessor’s audit report was issued. Signup and view all the answers

Which of the following is NOT a financial assertion that auditors consider during an audit?

Auditor's opinion on future performance Signup and view all the answers

What is one key aspect of audit evidence that helps auditors reduce detection risk?

Utilizing evidence from external sources as well as from internal documents. Signup and view all the answers

Audit Committee and Evidence Sufficiency Quiz

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