AB453 Exam 2 Review Sheet PDF

## Audit Engagements **12. Which of the following presumptions does not relate to the appropriateness of audit evidence?** - The more effective internal control, the more assurance it provides about the accounting data and financial statements. - An auditor's opinion, to be economically useful, is...

## Audit Engagements **12. Which of the following presumptions does not relate to the appropriateness of audit evidence?** - The more effective internal control, the more assurance it provides about the accounting data and financial statements. - An auditor's opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost. - Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. - **The independent auditor's direct personal knowledge obtained through observation and inspection is more persuasive than information obtained indirectly.** **13. Observation is considered a reliable audit procedure, but one that is limited in usefulness. However, it is used in a number of different audit situations. Which of the following statements is true regarding observation as an audit technique?** - It is the most effective audit methodology to use in filling out internal control questionnaires. - It is the most persuasive methodology to learn how transactions are really processed during the period under audit. - **It is most persuasive about the performance of a process but is limited to the point in time at which the observation takes place.** - It is the most persuasive audit technique for determining if fraud has occurred. **9. Which of the following procedures would provide the most reliable audit evidence?** - Inquiries of the client's internal audit staff held in private. - **Inspection of prenumbered client purchase orders filed in the vouchers payable department.** - Analytical procedures performed by the auditor on the entity's trial balance. - Inspection of bank statements obtained directly from the client's financial institution. **10. The most reliable forms of documentary evidence are those documents that are** - Prenumbered. - **Internally generated.** - Easily duplicated. - Authorized by a responsible official. **78. Audit documentation that records the procedures used by the auditor to gather evidence should be** - Considered the primary support for the financial statements being audited. - Viewed as the connecting link between the books of account and the financial statements. - **Designed to meet the circumstances of the particular engagement.** - Destroyed when the audited entity ceases to be a client. **8. Which of the following statements concerning evidence is true?** - Appropriate evidence supporting management's assertions should be convincing rather than merely persuasive. - Effective internal control contributes little to the reliability of the evidence created within the entity. - The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained. - **A client's accounting records cannot be considered sufficient audit evidence to support the financial statements.** **79. Which of the following documentation is not required for an audit in accordance with auditing standards?** - A written audit plan setting forth the procedures necessary to accomplish the audit's objectives. - An indication that the accounting records agree or reconcile with the financial statements. - A client letter that details the auditor's planned field work. - **The basis for the auditor's conclusions about the assessed level of control risk.** **84. Although the quantity and content of audit documentation varies with each particular engagement, an auditor's permanent files most likely include** - Schedules that support the current year's adjusting entries. - Prior years' accounts receivable confirmations that were classified as exceptions. - **Documentation indicating that the audit work was adequately planned and supervised.** - Analyses of capital stock and other equity accounts. **81. An auditor's working papers will ordinarily be least likely to include documentation showing how the** - Client's schedules were prepared. - Engagement was planned. - **Auditor addressed contradictory or inconsistent evidence.** - Unusual matters were resolved. **85. Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to** - Permit cross-referencing and simplify supervisory review. - Support the audit report. - Eliminate the need for follow-up reviews. - **Determine that working papers adequately support findings, conclusions, and reports.** **86. The audit working paper that reflects the major components of an amount reported in the financial statements is the** - Interbank transfer schedule. - Carryforward schedule. - **Supporting schedule.** - Lead schedule. **82. Which of the following is usually included or shown in the audit documentation?** - The procedures used by the auditor to verify the personal financial status of members of the client's management team. - Analyses that are designed to be a part of, or a substitute for, the client's accounting records. - **Excerpts from authoritative pronouncements that support the underlying generally accepted accounting principles used in preparing the financial statements.** - The manner in which exceptions and unusual matters disclosed by the auditor's procedures were resolved or treated. **83. Standardized working papers are often used, chiefly because they allow audit documentation to be prepared more** - Efficiently. - Professionally. - **Neatly.** - Accurately. **87. An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for** - Cash flow increases and decreases. - Audit objectives and assertions. - **Reclassifications and adjustments.** - Reconciliations and tickmarks. **2. The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the** - Management representation letter - **Scope paragraph of the auditor's report** - Engagement letter - Introductory paragraph of the auditor's report **3. An auditor's engagement letter most likely will include** - Management's acknowledgment of its responsibility for maintaining effective internal control - The auditor's preliminary assessment of the risk factors relating to misstatements arising from fraudulent financial reporting - A reminder that management is responsible for illegal acts committed by employees - **A request for permission to contact the client's lawyer for assistance in identifying litigation, claims, and assessments** **4. Which of the following factors most likely would cause an auditor to decline a new audit engagement?** - An inadequate understanding of the entity's internal control - The close proximity to the end of the entity's fiscal year - Concluding that the entity's management probably lacks integrity - **An inability to perform preliminary analytical procedures before assessing control risk** **6. Which of the following factors most likely would cause a CPA to reject a new audit engagement?** - The prospective client has already completed its physical inventory count - **The CPA lacks an understanding of the prospective client's operations and industry** - The CPA is unable to review the predecessor auditor's audit documentation - The prospective client is unwilling to make all financial records available to the CPA **7. 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 - **Obtain a copy of the client's financial statements** - Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan - Discuss the management representation letter with the prospective client's audit committee **12. Which of the following is required documentation in an audit in accordance with auditing standards?** - A flowchart or narrative of the information system describing the recording and classification of transactions for financial reporting - **An audit plan setting forth in detail the procedures necessary to accomplish the engagement's objectives** - A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of entity personnel - An internal control questionnaire identifying policies and procedures that assure specific objectives will be achieved **13. An auditor obtains knowledge about a new client's business and its industry to** - Make constructive suggestions concerning improvements in the client's internal control - **Develop an attitude of professional skepticism concerning management's financial statement assertions** - Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated - Understand the events and transactions that may have an effect on the client's financial statements **14. 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** - Reduce audit risk by lowering the preliminary levels of materiality - **Design special substantive tests to compensate for the lack of industry expertise** - Engage financial experts familiar with the nature of the industry - Obtain a knowledge of matters that relate to the nature of the entity's business **17. In planning the audit engagement, the auditor should consider each of the following except** - Matters relating to the entity's business and the industry in which it operates - **Risks of material misstatement due to fraud** - Anticipated levels of control risk and materiality - The kind of opinion (unqualified, qualified, or adverse) that is likely to be expressed **19. Which of the following is most likely the first step an auditor will perform after accepting an initial audit engagement?** - **Prepare a rough draft of the financial statements and of the auditor's report** - Assess control risk for the assertions embodied in the financial statements - Tour the client's facilities and review the general records - Consult with and review the work of the predecessor auditor prior to discussing the engagement with the client management **21. In designing written audit plans, an auditor should establish specific audit objectives that relate primarily to the** - **Financial statement assertions** - Timing f audit procedures - Cost-benefit of gathering evidence - Selected audit techniques **22. 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** - The audit plan - Auditing standards - The audit documentation **23. Financial statement audit plans are modified to suit the circumstances of particular engagements. An audit plan usually should be developed** - **Prior to beginning the actual audit work** - After the auditor has obtained an understanding of the client, its environment, and internal control and assessed risks - After obtaining an understanding of the information and communication and control activities components of internal control - When the engagement letter is prepared **24. One of the primary roles of an engagement work program is to** - **Serve as a tool for planning and conducting engagement work** - Document an internal auditor's evaluations of controls - Provide for a standardized approach to the engagement - Assess the risks associated with the activity under review