the audit process-accepting an engagement.docx

7/25/2019 The Audit Process-Accepting an Engagement.docx

http://slidepdf.com/reader/full/the-audit-process-accepting-an-engagementdocx 1/7

1. The objective of the ordinary audit of nancial statements is the expression of an opinion on:a. the fairness of the nancial statements in all material respects.b. the accuracy of the nancial statements.c. the accuracy of the annual report.d. the accuracy of the balance sheet and income statement.

2. The responsibility for the preparation of the nancial statements and the accompanying footnotes belongto:a. the auditor.

b. management.c. both management and the auditor equally.d. management for the statements and the auditor for the notes.

3. uditors accumulate evidence to:a. defend themselves in the event of a la!suit.b. justify the conclusions they have other!ise reached.c. satisfy the requirements of the "ecurities and #xchange $ommission.d. enable them to reach conclusions about the fairness of the nancial statements.

%. &anagement assertions are:a. directly related to the nancial reporting frame!or' used by the company.b. stated in the footnotes to the nancial statements.c. explicitly expressed representation about the company( nancial condition.d. provided to the auditor in the assertions letter) but are not disclosed on the nancial statements.

*. This assertion addresses !hether all transactions that should be included in the nancial statements are infact include.a. occurrence

b. completenessc. rights and obligationsd. existence

+. ,hich of the follo!ing statements is not correct-a. t !ould be a violation of the completeness assertion if management !ould record a sale that did not

ta'e place.b. The completeness assertion deals !ith matters opposite from those of the existence assertion.c. The completeness assertion is concern !ith the possibility of omitting items from the nancial

statements that should behave been included.d. The existence assertion is concerned !ith inclusion of amount that should not have been.

/. ,hich of the follo!ing assertions does not relate to balance at period end-a. #xistenceb. 0ccurrencec. aluation or allocationd. ights and obligation

. ,hich of the follo!ing statements is correct-a. #xistence relates to !hether the amounts in accounts are understated.

b. $ompleteness relates to !hether balances exist.c. #xistence relates to !hether the balances are valid.d. 0ccurrence relates to !hether the amounts in accounts occurred in proper year.

4. ,hich of the follo!ing management assertions is not associated !ith transaction5related audit objectives-a. 0ccurrenceb. $lassication and understandabilityc. ccuracyd. $ompleteness

16. n assertion that transactions are recorded in proper accounting period is:a. classicationb. accuracyc. occurrenced. cut5o7

11. The auditor is determining that the record sales are for the amount of goods shipped are correctly billedand recorded. The auditor is gathering evidence about !hich transaction related audit objective-a. existence

b. completenessc. accuracyd. cut5o7

12. n testing the cut5o7 ) the objective is to determine:a. !hether all of the current period(s transactions are recorded.b. !hether transactions are recorded in the correct accounting period.c. the proper cut5o7 bet!een capitali8ing and expensing expenditure.d. the proper cut5o7 bet!een disclosing items in footnotes or in account balances.

13. ,hich of the follo!ing statements are not correct-a. There are many !ays an auditor can accumulate evidence to meet the overall audit objectives.b. "u9cient appropriate evidence must be accumulated to meet the auditor(s professional responsibility.c. The cost of accumulating evidence should be minimi8ed.



d. athering evidence and minimi8ing costs are equally important considerations that a7ect theapproach the auditor selects.

1%. ,hen the auditors develops supporting evidence for amounts posted to account balances !ithdocumentary evidence) that process is called:a. inquiryb. conrmationc. vouchingd. physical examination

1*. ,hen the auditor uses tracing as an audit procedure for test of transactions) the auditor is primarilyconcerned !ith !hich audit objective-a. 0ccurrenceb. $ompletenessc. $ut5o7 d. $lassication

1+. ,hen auditor use documentation to support recorded transactions and amounts) the process is usuallycalled:a. tracingb. conformationsc. vouchingd. reperformance

1/. ,hen the auditor used the audit procedure vouching) the auditor is primarily concerned !ith !hich of thefollo!ing audit objectives !hen testing classes of transactions-a. 0ccurrenceb. $ompletenessc. uthori8ationd. $lassication

1. n performing your audit for a privately5held rm your inquiries have yielded that one of the company(so!ner(s primary motivations is to pay the least amount of income tax that is possible. ;ased on thisobservation !hich audit objective for ending inventory !ould the auditor be most concerned aboutascertaining-a. $ompletenessb. ccuracyc. ights and obligationsd. #xistence

14. fter the auditor has completed all audit procedures) it is necessary to combine the information obtainedto reach an overall conclusion as to !hether the nancial statements are fairly presented. This is a highlysubjective process that relies heavily on:a. generally accepted auditing standards.b. the $ode of <rofessional #thics.c. <="d. the auditor(s professional judgment.

26. ,hich of the follo!ing audit procedures is used extensively throughout the audit and often iscomplementary to performing other audit procedures-a. nspectionb. 0bservationc. nquiryd. $onrmation

21. ,hich statement is incorrect regarding inquiry-a. esponses to inquiries may provide the auditor !ith information not previously possessed or !ith

corroborative audit evidence.b. esponses to inquiries might provide information that di7ers signicantly from other information that

the auditor has obtained.c. esponses to inquiries may provide a basis for the auditor to modify or perform additional audit

procedures.d. nquiry alone is su9cient to test the operating e7ectiveness of controls.

22. 0bservationa. $onsist of loo'ing at a process or procedure being performed by others.

b. $onsist of see'ing information of 'no!ledgeable persons) both nancial and non5nancial) throughoutthe entity or outside the entity.

c. s the process of obtaining a representation of information or of an existing condition directly from athird party-

d. s the auditor(s independent execution of procedures or controls that !ere originally performed as partof the entity(s internal control

23. This consists of chec'ing the mathematical accuracy of documents or records.a. eperformanceb. ecalculationc. $onrmationd. nspection



2%. #ven !ith the most e7ectively designed internal control) the auditor must obtain audit evidence) beyondtesting the controls) for every:a. transactionb. nancial statements accountc. material nancial statements accountd. nancial statement account that !ill be relied upon by third parties.

2*. The sequence of steps in gathering evidence as the basis of the auditor(s opinion isa. "ubstantive tests) documentation of control structure) and tests of controls

b. >ocumentation of control structure) tests of controls) and substantive testsc. >ocumentation of control structure) substantive tests ) and tests of controlsd. Tests of controls) documentation of control structure) and substantive tests

2+. ,hich of the follo!ing is the correct order of steps in the audit process-. <erform tests of control;. >evelop an overall strategy for the expected conduct and scope of the audit$. 0btain client(s !ritten representation>. <repare engagement letter#. <erform substantive tests

a. >) ) ;) #) $b. >) ;) ) #) $c. >) ;) $) ) #d. >) ;) #) ) $

2/. ,hich of the follo!ing !ould an auditor least li'ely perform as part of the auditor(s preliminaryengagement activities-a. <erform procedures regarding the continuance of the client relationship and the specic audit

engagement.b. #valuate compliance !ith ethical requirements) including independence.c. #stablished an understanding of the terms of the engagement.d. 0btain understanding of the legal and regulatory frame!or' applicable to the entity.

2. ,hich of the follo!ing is not one of the reasons !hy auditor should perform preliminary engagementactivities-a. To ensure that the auditor maintains the necessary independence and ability to perform the

engagement.b. To help ensure that there are no issues !ith management integrity that may a7ect the auditor(s

!illingness to continue the engagement.c. To ensure that there is no misunderstanding !ith the client as to the terms of the engagement.d. To ensure that su9cient appropriate evidence !ill be obtained to support the auditor(s opinion on the

nancial statements.24. ,hich of the follo!ing is not normally performed in the preplanning or pre5engagement phase-

a. >eciding !hether to accept or reject an audit engagement.b. nquiring from predecessor auditor.c. <reparing an engagement letter.

d. &a'ing a preliminary estimate of materiality.36. n ma'ing a decision to accept or to continue !ith a client) the auditor should consider:

a. b. c. d.ts competence ?#" ?#" ?#" ?#"ts independence ?#" @0 ?#" @0ts ability to serve the client properly ?#" ?#" ?#" @0 The integrity of client(s management ?#" ?#" @0 ?#"

31. ;efore accepting an engagement to audit a ne! client) a $< is required to obtaina. preliminary understanding of the prospective client(s industry and business.b. The prospective client(s signature to the engagement letterc. n understanding of the prospective clients control environment.d. representation letter from the prospective client.

32. <reliminary 'no!ledge about the clients business and industry must be obtained prior to the acceptance of the engagement primarily toa. >etermine the degree of 'no!ledge and expertise required by the engagement.

b. >etermine the integrity of management.c. >etermine !hether the rm is independent !ith the client.d. ather evidence about the fairness of the nancial statements.

33. $< rm(s quality control procedures pertaining to the acceptance of a prospective audit client !ouldmost li'ely includea. nquiry of management as to !hether disagreements bet!een the predecessor auditor and the

prospective client !ere resolved satisfactorily.b. $onsideration of !hether su9cient competent evidential matter may be obtained to a7ord a

reasonable basis for an opinion.c. nquiry of third parties) such as the prospective client(s ban'ers and attorneys) about information

regarding the prospective client and its management.



d. $onsideration of !hether the internal control structure is su9ciently e7ective to permit a reduction inthe required substantive tests.

3%. <rior to the acceptance of an audit engagement !ith a client !ho has terminated the services of thepredecessor auditor) the $< shoulda. $ontact the predecessor auditor !ithout advising the prospective client and request a complete report

of the circumstance leading to the termination !ith the understanding that all information disclosed!ill be 'ept condential.

b. ccept the engagement !ithout contacting the predecessor auditor since the $< can include audit

procedures to verify the reason given by the client for the termination.c. @ot communicate !ith the predecessor auditor because this !ould in e7ect be as'ing the auditor to

violate the condential relationship bet!een the auditor and the client.d. dvise the client of the intention to contact the predecessor auditor and request permission for the

contact.3*. The purpose of the requirement in having communication bet!een the predecessor and successor auditors

is to:a. allo! the predecessor to disclose information !hich !ould other!ise be condential.b. help the successor auditor evaluate !hether to accept the engagement.c. help the client by facilitating the change of auditors.d. ensure the predecessor collects all unpaid fees prior to a change in auditor.

3+. Aenna) $<) has been retained to audit the nancial statements of A& $o. A&(s predecessor auditor !as&oshe) $<) !ho has been notied by A& that &oshe(s services have been terminated. Bnder thesecircumstances) !hich party should initiate the communication bet!een Aenna and &oshe-a. Aenna) the incoming auditor.b. &oshe) the predecessor auditorc. A&(s controller.d. The chairman of A&(s board of directors

3/. n an audit) communication bet!een the predecessor and incoming auditor should bea. authori8ed in an engagement letterb. ac'no!ledged in a representation letterc. either !ritten or orald. !ritten and included in the !or'ing papers

3. the predecessor auditor is required to respond to the request of the successor auditor fo4r information) butthe response can be limited to stating that no information !ill be provided !hen:a. the predecessor auditor has poor relations !ith the successor auditor.b. the client is dissatised !ith the predecessor(s !or'.c. there are actual or potential legal problems bet!een the client and the predecessor.d. the predecessor believes that the client lac's integrity.

34. rnel) $<) is succeeding on) $<) on the audit engagement o f Ain $orporation. rnel plans to consult onand to revie! on(s prior year !or'ing papers. rnel may do so if a. on and Ain consentb. Ain consents

c. on consentsd. on and rnel consents

%6. Bpon discovering material misstatements in a client(s nancial statements that the client !ould not revise)the auditor !ithdre! from the engagement. f as'ed by the incoming auditor about the termination theengagement) the predecessor auditor shoulda. "tate that he found material misstatements that the client !ould not reviseb. "uggest that the incoming auditor as' the clientc. "uggest that the incoming auditor obtain the client(s permission to discuss the reasonsd. ndicate that a misunderstanding occurred

%1. ;efore accepting an engagement to audit a ne! client) a $< is required to obtaina. n understanding of the prospective client(s industry and businessb. The prospective client(s signature to the engagement letter.c. preliminary understanding of the prospective client(s control environmentd. The prospective clients consent to ma'e inquiries of the predecessor auditor) if any.

%2. ;efore accepting an audit engagement) a successor auditor should ma'e specic inquiries of thepredecessor auditor regarding

a. >isagreements the predecessor had !ith the client concerning auditing procedures and accountingprinciples

b. The predecessor(s evaluation of matters of continuing accounting signicance.c. The degree of cooperation the predecessor received concerning the inquiry of the client(s la!yer.d. The predecessor(s assessments of inherent ris' and judgments about materiality

%3. ;efore accepting an audit engagement) a successor auditor should ma'e specic inquiries of thepredecessor auditor regarding the predecessor(sa. 0pinion of any subsequent events occurring since the predecessor(s audit report !as issuedb. Bnderstanding as to the reasons for the change of auditorsc. !areness of the consistency in the application of <=" bet!een periodsd. #valuation of all matters of continuing accounting signicance

%%. n incoming auditor most li'ely !ould ma'e specic inquiries of the predecessor auditor regarding



a. "peciali8ed accounting principles of the client(s industryb. The competency of the client(s internal audit sta7.c. The uncertainty inherent in applying sampling procedures.d. >isagreements !ith management as to auditing procedures.

%*. ,hich of the follo!ing should an incoming auditor obtain from the predecessors auditor prior to acceptingan audit engagementa. nalysis of balance sheet accountsb. nalysis of income statements accounts

c. ll matters of continuing accounting signicanced. =acts that bear on the integrity of management

%+. ,hat information should an incoming auditor obtain during the inquiry of the predecessor auditor prior toacceptance of the audit-. =acts that bear in the integrity of the management. ,hether statistical or non5statistical sampling !as used to gather evidence. >isagreement !ith management concerning auditing procedures. The e7ect of the client(s internal audit function on the scope of the independent auditor(s

examinationa. and b. and c. and d. and

%/. n incoming auditor should request the ne! client to authori8e the predecessor auditor to allo! a revie! of the predecessor(s

#ngagement letter ,or'ing <apera. ?es ?esb. @o @oc. @o ?esd. @o @o

%. ,hich of the follo!ing factors most li'ely !ould cause an auditor not to accept a ne! audit engagementC-a. n inadequate understanding of the entity(s interval control structureb. The close proximity to the end of the entity(s scal yearc. $oncluding that that entity(s management probably lac's integrityd. n inability to perform preliminary analytical procedures before assessing control ris'

%4. ,hich of the follo!ing factors most li'ely !ould inDuence an auditor(s determination of the auditability ofentity(s nancial statements

a. The complexity of the accounting systemb. The existence of related party transactionsc. The adequacy of the accounting recordsd. The operating e7ectiveness of control procedures

*6. n auditing the nancial statements of "tar $orp.) Eand discovered information lending Eand to believe that"tar(s prior year(s nancial statements) !hich are audited by Aell) require substantial revisions. Bnder these

circumstances) Eand shoulda. @otify "tar(s audit committee and stoc'holders that the prior year(s nancial statements cannot be

relied on.b. equest "tar to reissue the prior year(s nancial statements !ith the appropriate revisions.c. @otify Aell about the information and ma'e inquiries about the integrity of "tar(s management.d. equest star to arrange a meeting among the three parties to resolve the matter.

*1. Fa!'ins requested permission to communicate !ith the predecessor auditor and revie! certain portions of the predecessor auditor(s !or' papers. The prospective client(s refusal to permit this !ill bear directly onFa!'in(s decision concerning the:a. dequacy of the preplanned audit programb. bility to established consistency in application of accounting principles bet!een yearsc. pparent scope limitationd. ntegrity of management

*2. 0rdinarily) the predecessor auditor permits the successor auditor to revie! the predecessor(s !or'ingpaper analysis relating to

$ontingencies ;alance sheet accounts

a. ?es ?esb. ?es @oc. @o ?esd. @o @o

*3. n ma'ing client acceptance decisions the audit rm !ill consider:a. inherent and control ris' of the client.b. audit ris' to the $< =irm.c. the client(s business ris' and the $< rm(s engagement ris'.d. $< =irms

*%. The purpose of an engagement letter is to:a. document the $< rm(s responsibility to external users of the audited nancial statements.b. document the terms of the engagement



c. notify the audit sta7 of an upcoming engagement so that personnel scheduling can be facilitatedd. emphasi8e management(s responsibility for approving the audit program

**. ;efore performing any audit procedures. The auditor and the client should agree on the Type of opinion to be expressed Terms of the engagement

a. ?es ?esb. @o ?esc. @o ?esd. ?es ?es

*+. #ngagement lettersa. may be either oral or !rittenb. must be !rittenc. must be !ritten and notari8edd. must be !ritten if the client is regulated by the "ecurities and #xchange $ommission

*/. ccording to <" 216) the auditor and the client should agree on the terms of engagement. The agreedterms !ould need to be recorded in aGnHa. memorandum to be placed in the permanent section of the auditing !or'ing papersb. engage letterc. client representationd. comfort letter

*. The auditor should document the understanding established !ith a client through aGnHa. 0ral communication !ith the clientb. ,ritten communication !ith the clientc. ,ritten or oral communication !ith the clientd. $ompletely detailed audit plan

*4. ,hich of the follo!ing is GareH valid reasons !hy an auditor sends to his client an engagement letter-a. b. c. d.

To avoid misunderstanding with respect to engagement ?es ?es @o ?esTo confrm the auditor’s acceptance o the appointment ?es ?es ?es@oTo document the objective and scope o the audit ?es ?es ?es ?esTo ensure CPA’s compliance to PSA ?es @o @o ?es

+6. ,ritten communication that the auditor !ill provide reasonable assurance for the detection of fraud isfound in:a. engagement letterb. representation letterc. responsibility letterd. client letter

+1. ,hich of the follo!ing normally signs the engagement letter for an audit of a private company-a. &anagement.

b. ;oard of directors representativec. udit committee representatived. $orporate treasurer

+2. f an auditor believes that an understanding !ith the client has not been established) he or she shouldordinarilya. <erform the audit !ith increased professional s'epticismb. >ecline to accept or perform the auditc. ssess the control ris' at the maximum level and perform a primarily substantive auditd. &odify the scope of the audit to reDect an increased ris' of material misstatement due to fraud

+3. #ngagement letter that documents and conrms the auditor(s acceptance of the engagement !ouldnormally be sent to the client.a. before the audit report issuedb. after the audit report is issuedc. at the end of the eld !or'd. before the commencement of the engagement

+%. an engagement letter should ordinarily include information on the objectives of the engagement and

CPA’s responsibility Clients responsibility Limitation o engagement a. ?es ?es ?esb. ?es @o ?esc. ?es @o @od. @o @o @o

+*. ,hich of the follo!ing matters is generally included in an auditor(s engagement letter-a. &anagement(s responsibility for the entity(s compliance !ith la!s and regulationsb. The factors to be considered in setting preliminary judgments about materialityc. &anagement(s explicit liability for illegal acts committed by its employeesd. The auditor(s responsibility to search for signicant internal control deciencies

++. ,hich of the follo!ing !ould be least li'ely to be included in the auditor(s engagement letter-a. =orms of the report



b. #xtent of his responsibilities to his clientc. 0bjectives and scope of the auditd. Type of opinion to be issued

+/. ,hich of the follo!ing is not one of the principal contents of an engagement letter-a. objective of the nancial statementsb. unrestricted access to records and documentsc. limitation of the engagementd. management(s responsibility for the nancial statements

+. n engagement letter !ould not normally includea. billing arrangementb. arrangement concerning client(s assistancec. details of the procedure that !ill be performedd. expectation of receiving a representation letter from management

+4. The audit engagement letter should generally include a reference to each of the follo!ing excepta. The expectation of receiving a !ritten management representation letterb. request for the client to conrm the terms of the engagementc. description of the auditor(s method of sample selectiond. The ris' that material misstatements may remain undiscovered

/6. fter preliminary audit) arrangements have been made) an engagement conrmation letter should be sentto the client. The letter usually !ould not concludea. reference to the auditor(s responsibility for the detection of errors or irregularitiesb. n estimate of the time to be spent on the audit !or' by audit sta7 and managementc. statement that management advisory services !ould be made available upon requestd. statement that a management letter !ill be issued outlining comments and suggestions as to any

procedures requiring the client(s attention/1. rrangements concerning !hich of the follo!ing are least li'ely to be included in engagement letters-

a. auditor(s responsibilitiesb. =ees and billingc. $< investment in client securitiesd. 0ther forms of reports to be issued in addition to the audit report

/2. The use of an engagement is the best method of documenting. The required communication of signicant deciencies in internal control structure. "ignicantly lo!er materiality levels than those used in the prior audit. The description of any letters or reports that the auditor expects to issue. @otication of any changes in the original arrangements of the audit

a. and b. and c. and d. and

/3. n !hich of the follo!ing situations !ould be the auditor be unli'ely to send a ne! engagement letter to acontinuing client-

a. a change in terms of the engagementsb. a signicant change in the nature or si8e of the client(s businessc. a recent change of client managementd. a recent change in the partner andIor sta7 in the audit engagement

/%. n continuing engagement) the continuing auditor !ould most li'ely send a ne! engagement letter !hena. there is a change in the partner assigned to the engagementb. there is a recent change in client(s managementc. there are ne! accounting pronouncements a7ecting the client(s nancial statementsd. there are expected minor changes in the nature or si8e of the client(s business

/*. ,hen the auditor of a parent entity is also the auditor of its subsidiary) branch or division GcomponentHJ!hich of the follo!ing factors !ould least li'ely inDuence the auditor(s decision to send separate letter to acomponent of a parent entity-a. eographical location of the component.b. Eegal requirementsc. >egree of o!nership by parentd. >egree of independence of component(s management.

the audit process-accepting an engagement.docx

Documents