Student: ___________________________________________________________________________ Before accepting an engagement to audit a new client, an auditor is required to: A. make inquiries of the predecessor auditor after obtaining the consent of the prospective client. B. obtain the prospective client's signature on the engagement letter. C. prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. D.
discuss the management representation letter with the prospective client's audit committee. In assessing whether to accept a client for an audit engagement, an auditor should consider the:
Entity's business risk Auditor's engagement risk A. Yes Yes B. Yes No C. No Yes D. No No A prospective client's refusal to give permission to communicate with the previous auditor and review certain portions of the previous
auditor's working papers will bear directly on the auditor's decision concerning the: A. ability to establish consistency in application of accounting principles. B. apparent scope limitation. C. integrity of management. D. adequacy of the planned audit program. Inquiry of the previous auditor is: A. required about matters that have a bearing on acceptance of the client. B. required after acceptance of a new client regarding matters the successor believes may affect the conduct of
his or her audit. C. helpful to the successor and may facilitate the successor's audit, but is not required either before or after acceptance of the client. D. required only if the change in auditors resulted from a disagreement between the client and previous auditors.
5.When an auditor is approached to perform an audit for the first time, the auditor should make inquiries of the previous auditor. This is a necessary procedure because the predecessor may be able to
provide the successor with information that will assist the successor in determining: A. whether the predecessor's work should be utilised. B. whether the company follows the policy of rotating its auditors. C. whether the predecessor's assessment of control risk has been high. D. whether the engagement should be accepted. What is the responsibility of an auditor with respect to communicating with the previous auditor in connection with a prospective new audit
client? A. The auditor has no responsibility to contact the previous auditor. B. The auditor should contact the previous auditor regardless of whether the prospective client authorises contact. C. The auditor need not contact the previous auditor if the successor is aware of all available facts. D. The auditor should obtain permission from the prospective client to contact the previous auditor. Which of the following should an auditor obtain from the previous auditor prior to
accepting an audit engagement? A. Analysis of statement of financial position accounts. B. Analysis of income statement accounts. C. All matters of continuing accounting significance. D. Facts that might bear on the integrity of management. Which of the following factors most likely would cause an auditor to not accept a new audit engagement? A. An inadequate understanding of the entity's internal control. B. The close proximity to the end of the entity's fiscal year. C. The
conclusion that the entity's management probably lacks integrity. D. An inability to perform preliminary analytical procedures before assessing control risk. Because of the risk of material misstatement, an audit of a financial report in accordance with the auditing standards should be planned and performed with an attitude of: A. objective judgment. B. independent integrity. C. professional scepticism. D. impartial conservatism. During preliminary audit planning:
A. the auditor considers the possibility of business failure. B. the auditor designs the audit to search for evidence to support the company's continued existence. C. the auditor does not need to consider the possibility of business failure because that is a procedure performed during the overall evaluation at the end of the audit. D. the auditor inquires of the company's legal advisers concerning the possibility of going concern problems. Which of the following situations would
most likely require special audit planning by the auditor? A. Some items of factory and office equipment do not bear identification numbers. B. Depreciation methods used on the client's tax return differ from those used on the books. C. Assets costing less than $500 are expensed even though the expected life exceeds one year. D. Inventory is comprised of precious gemstones. An audit program should be designed for each individual audit and should include audit steps and procedures
to: A. ensure that only material items are audited. B. detect all fraud. C. identify all internal control weaknesses. D. ensure an efficient and effective audit. Time budgets on audit engagements are not used for which of the following reasons? A. Monitor actual audit hours worked by staff on an engagement. B. Ensure that adequate time is allocated to significant areas of the audit. C. Estimate an appropriate fee for the engagement. D. To ensure that audit staff working on the
engagement are paid the correct amount. An auditor obtains knowledge about a new client's business and its industry in order to: A. make constructive suggestions concerning improvements to the client's internal control. B. develop an attitude of professional scepticism concerning management's financial report assertions. C. evaluate whether the aggregation of known misstatements causes the financial report taken as a whole to be materially misstated. D. understand the events and
transactions that may have an effect on the client's financial report. To ascertain the exact name of the corporate client, the auditor relies primarily on: A. corporate minutes. B. by-laws. C. company constitution. D. tax returns. An auditor searching for related-party transactions should obtain an understanding of each subsidiary's relationship to the total entity because: A. intercompany transactions may have been consummated on terms equivalent to arm's length
transactions. B. this might reveal whether particular transactions would have taken place if the parties had not been related. C. the business structure may be deliberately designed to obscure related-party transactions. D. this might permit the audit of intercompany account balances to be performed as of concurrent dates. Which of the following procedures would not be used to obtain an understanding of the entity and its environment? A. Observe entity operations. B. Re-perform
entity processes. C. Verify proper evaluation of inventory subject to technological obsolescence. D. Review prior year's audit documentation. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should: A. engage financial experts familiar with the nature of the business entity. B. obtain knowledge of matters that relate to the nature of the entity's business. C. refer a substantial portion of the audit to another auditor,
who will act as the principal auditor. D. first inform management that an unmodified auditor's opinion cannot be issued. Analytical procedures may be classified as being primarily: A. tests of control. B. detailed tests of balances. C. tests of ratios. D. substantive tests. Analytical procedures are: A. never required. B. required for planning, substantive testing and overall review of the financial report. C. required for planning and overall review of the
financial report. D. required during planning only. The auditor generally gives most emphasis to ratio and trend analysis in the examination of: A. retained earnings. B. income. C. financial position. D. cash flows. An example of an analytical procedure is the comparison of: A. recorded amounts of major disbursements with appropriate invoices. B. results of a statistical sample with the expected characteristics of the actual population. C. computer-generated data
with similar data generated by a manual accounting system. D. financial information with similar information regarding the industry in which the entity operates. Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests? A. Relationships involving statement of financial position accounts. B. Transactions subject to management discretion. C. Relationships involving income statement accounts. D. Data subject to audit
testing in the prior year. Analytical procedures that are required in all audits of financial reports are analytical procedures: A. relevant to achieving important audit objectives related to particular assertions. B. expected to be efficient and effective in the circumstances. C. based on available and reliable financial data. D. used in the planning and overall review stages. In applying analytical procedures, the identification of the relationships and types of
data used, as well as conclusions reached when recorded amounts are compared to expectations, requires: A. judgment by the auditor. B. participation by senior audit team members. C. understanding of complex models. D. advanced training in plausibility formulation. An auditor compares this year's revenues and expenses with those of the previous year and investigates all changes exceeding 10 per cent. By carrying out this procedure the auditor would be most likely to learn that: A.
an increase in property tax rates has not been recognised in the client's accrual. B. the provision for uncollectible accounts is inadequate because of worsening economic conditions. C. fourth-quarter payroll taxes were not paid. D. the client changed its capitalisation policy for small tools. Which of the following is not a benefit of analytical procedures? A. Assists in understanding a client's business and identifying areas of potential risk. B. Enables the auditor to review
the financial and non-financial information of a client. C. May reduce the level of detailed audit testing if the control system surrounding the reliability of the information is strong. D. Provides adjustments to error levels during tests of control. Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities? A. Unrecorded sales. B. Merchandise purchases
charged to selling and general expense. C. Fictitious sales. D. Unrecorded purchases. One reason why the independent auditor performs analytical procedures of the client's operations is to identify: A. deficiencies of a material nature in the internal control. B. unusual transactions. C. non-compliance with prescribed control procedures. D. improper separation of accounting and other financial duties.
Chapter 06 Key- Before accepting an engagement to
audit a new client, an auditor is required to: A. make inquiries of the predecessor auditor after obtaining the consent of the prospective client. B. obtain the prospective client's signature on the engagement letter. C. prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. D. discuss the management representation letter with the prospective client's audit committee.
Chapter - Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning
Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an audit engagement letter. Section: Client acceptance and continuance - In assessing whether to accept a client for an audit engagement, an auditor should consider the:
Entity's business risk Auditor's engagement risk A. Yes Yes B. Yes No C. No Yes D. No No Chapter
- Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an audit engagement letter. Section: Client acceptance and continuance - A prospective client's refusal to give permission to communicate with the previous auditor and review certain portions of the previous auditor's working papers will
bear directly on the auditor's decision concerning the: A. ability to establish consistency in application of accounting principles. B. apparent scope limitation. C. integrity of management. D. adequacy of the planned audit program.
Chapter - Chapter 06 # Difficulty: Medium Est Time: 1ñ3 mins Learning Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an
audit engagement letter. Section: Client acceptance and continuance - Inquiry of the previous auditor is: A. required about matters that have a bearing on acceptance of the client. B. required after acceptance of a new client regarding matters the successor believes may affect the conduct of his or her audit. C. helpful to the successor and may facilitate the successor's audit, but is not required either before or after acceptance of the client. D. required only if the change
in auditors resulted from a disagreement between the client and previous auditors.
Chapter - Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an audit engagement letter. Section: Client acceptance and continuance 5.When an auditor is approached to perform an audit for the first time,
the auditor should make inquiries of the previous auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining: A. whether the predecessor's work should be utilised. B. whether the company follows the policy of rotating its auditors. C. whether the predecessor's assessment of control risk has been high. D. whether the engagement should be accepted. Chapter - Chapter 06 # Difficulty:
Easy Est Time: 1ñ3 mins Learning Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an audit engagement letter. Section: Client acceptance and continuance - Engagement letters include all of the following except: A. a list of additional services that will be provided. B. a list of adjusting journal entries. C. information about the audit fee. D.
arrangements involving the use of experts.
Chapter - Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an audit engagement letter. Section: Client acceptance and continuance - The scope and nature of an auditor's contractual obligation to a client ordinarily is established in
the: A. engagement letter. B. Corporations Act 2001. C. management letter. D. client's constitution.
Chapter - Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an audit engagement letter. Section: Client acceptance and continuance - An audit firm's quality control procedures
pertaining to the acceptance of a prospective audit client would most likely include: A. inquiry of management as to whether disagreements between the previous auditor and the prospective client were resolved satisfactorily. B. consideration of whether sufficient appropriate audit evidence may be obtained to afford a reasonable basis for an opinion. C. inquiry of third parties, such as the prospective client's bankers and solicitors, about information regarding the prospective client and its
management. D. consideration of whether the internal control is sufficiently effective to permit a reduction in the extent of required substantive tests.
Chapter - Chapter 06 # Difficulty: Hard Est Time: 1ñ3 mins Learning Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an audit engagement letter. Section: Client acceptance and continuance - An auditor who finds that the client has committed an illegal act would be most likely to withdraw from the engagement when the: A. illegal act affects the auditor's ability to rely on management representations. B. illegal act has material financial report implications. C. illegal act has received widespread publicity. D. auditor cannot reasonably estimate the effect of the illegal act on the financial report.
Chapter - Chapter 06 # Difficulty: Hard Est Time: 1ñ3 mins
Learning Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an audit engagement letter. Section: Client acceptance and continuance - Prior to the acceptance of an audit engagement with a client who has terminated the services of the previous auditor, the proposed auditor should: A.
contact the previous auditor without advising the
prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential. B. accept the engagement without contacting the previous auditor, since the proposed auditor can include audit procedures to verify the reason given by the client for the termination. C. not communicate with the previous auditor, because this would in effect be asking the auditor to violate the confidential
relationship between auditor and client. D. advise the client of the intention to contact the previous auditor and request permission for the contact. Chapter - Chapter 06 # Difficulty: Medium Est Time: 1ñ3 mins Learning Objective: 6 Explain why the decision to accept a client is important, and describe the primary features of client acceptance and continuance, including the purpose and content of an audit engagement letter. Section: Client acceptance and continuance - Because
of the risk of material misstatement, an audit of a financial report in accordance with the auditing standards should be planned and performed with an attitude of: A. objective judgment. B. independent integrity. C. professional scepticism. D. impartial conservatism.
Chapter - Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning Objective: 6 Describe the decisions made by an auditor in preparing an audit plan, the knowledge on which the decisions are based and the procedures
used to obtain that knowledge. Section: Audit planning - Time budgets on audit engagements are not used for which of the following reasons? A. Monitor actual audit hours worked by staff on an engagement. B. Ensure that adequate time is allocated to significant areas of the audit. C. Estimate an appropriate fee for the engagement. D. To ensure that audit staff working on the engagement are paid the correct amount.
Chapter - Chapter 06 # Difficulty: Easy Est Time:
1ñ3 mins Learning Objective: 6 Describe the process of assigning and scheduling audit staff. Section: Assigning and scheduling audit staff - An auditor obtains knowledge about a new client's business and its industry in order to: A. make constructive suggestions concerning improvements to the client's internal control. B. develop an attitude of professional scepticism concerning management's financial report assertions. C. evaluate whether the aggregation of known
misstatements causes the financial report taken as a whole to be materially misstated. D. understand the events and transactions that may have an effect on the client's financial report.
Chapter - Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning Objective: 6 Identify the important aspects of the auditorís understanding of an entity and its environment. Section: Understanding of the entity and its environment - To ascertain the exact name of the corporate
client, the auditor relies primarily on: A. corporate minutes. B. by-laws. C. company constitution. D. tax returns.
Chapter - Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning Objective: 6 Identify the important aspects of the auditorís understanding of an entity and its environment. Section: Understanding of the entity and its environment - An auditor searching for related-party transactions should obtain an understanding of each subsidiary's relationship
to the total entity because: A. intercompany transactions may have been consummated on terms equivalent to arm's length transactions. B. this might reveal whether particular transactions would have taken place if the parties had not been related. C. the business structure may be deliberately designed to obscure related-party transactions. D. this might permit the audit of intercompany account balances to be performed as of concurrent dates.
Chapter - Chapter 06 # Difficulty: Medium
Est Time: 1ñ3 mins Learning Objective: 6 Identify the important aspects of the auditorís understanding of an entity and its environment. Section: Understanding of the entity and its environment - Which of the following procedures would not be used to obtain an understanding of the entity and its environment? A. Observe entity operations. B. Re-perform entity processes. C. Verify proper evaluation of inventory subject to technological obsolescence. D. Review prior year's audit
documentation.
Chapter - Chapter 06 # Difficulty: Medium Est Time: 1ñ3 mins Learning Objective: 6 Identify the important aspects of the auditorís understanding of an entity and its environment. Section: Understanding of the entity and its environment - An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should: A. engage financial experts familiar with the nature of the business entity. B. obtain knowledge
of matters that relate to the nature of the entity's business. C. refer a substantial portion of the audit to another auditor, who will act as the principal auditor. D. first inform management that an unmodified auditor's opinion cannot be issued.
Chapter - Chapter 06 # Difficulty: Medium Est Time: 1ñ3 mins Learning Objective: 6 Identify the important aspects of the auditorís understanding of an entity and its environment. Section: Understanding of the entity and its environment
- Analytical procedures used in planning an audit should focus on identifying: A. the predictability of financial data from individual transactions. B. the various assertions that are embodied in the financial report. C. areas that may represent specific risk relevant to the audit. D. material weaknesses in internal control.
Chapter - Chapter 06 # Difficulty: Medium Est Time: 1ñ3 mins Learning Objective: 6 Outline the types and uses of analytical procedures and
distinguish those that are useful in obtaining an understanding of an entity and assessing business risk. Section: Analytical procedures - Which of the following is not a typical analytical procedure? A. Study of relationships of the financial information with relevant non-financial information. B. Comparison of the financial information with similar information regarding the industry in which the entity operates. C. Comparison of recorded amounts of major disbursements with
appropriate invoices. D. Comparison of the financial information with budgeted amounts.
Chapter - Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning Objective: 6 Outline the types and uses of analytical procedures and distinguish those that are useful in obtaining an understanding of an entity and assessing business risk. Section: Analytical procedures - Analytical procedures may be classified as being primarily: A. tests of control. B. detailed tests of
balances. C. tests of ratios. D. substantive tests.
Chapter - Chapter 06 # Difficulty: Easy Est Time: 1ñ3 mins Learning Objective: 6 Outline the types and uses of analytical procedures and distinguish those that are useful in obtaining an understanding of an entity and assessing business risk. Section: Analytical procedures - Analytical procedures are: A. never required. B. required for planning, substantive testing and overall review of the financial report. C.
required for planning and overall review of the financial report. D. required during planning only.
Chapter - Chapter 06 # Difficulty: Medium Est Time: 1ñ3 mins Learning Objective: 6 Outline the types and uses of analytical procedures and distinguish those that are useful in obtaining an understanding of an entity and assessing business risk. Section: Analytical procedures - The auditor generally gives most emphasis to ratio and trend analysis in the examination
of: A. retained earnings. B. income. C. financial position. D. cash flows.
Chapter - Chapter 06 # Difficulty: Medium Est Time: 1ñ3 mins Learning Objective: 6 Outline the types and uses of analytical procedures and distinguish those that are useful in obtaining an understanding of an entity and assessing business risk. Section: Analytical procedures - An example of an analytical procedure is the comparison of: A. recorded amounts of major disbursements with
appropriate invoices. B. results of a statistical sample with the expected characteristics of the actual population. C. computer-generated data with similar data generated by a manual accounting system. D. financial information with similar information regarding the industry in which the entity operates.
Chapter - Chapter 06 # Difficulty: Medium Est Time: 1ñ3 mins Learning Objective: 6 Outline the types and uses of analytical procedures and distinguish those that are useful in
obtaining an understanding of an entity and assessing business risk. Section: Analytical procedures
What steps should an auditor take before start of audit?
Preparing for an Audit. Have all requested materials/records ready when requested. ... . Step 1: Planning. The auditor will review prior audits in your area and professional literature. ... . Step 2: Notification. ... . Step 3: Opening Meeting. ... . Step 4: Fieldwork. ... . Step 5: Report Drafting. ... . Step 6: Management Response. ... . Step 7: Closing Meeting.. 11 Before accepting an engagement for an initial audit, including a reau- dit engagement, the auditor should request management to authorize the pre- decessor auditor to respond fully to the auditor's inquiries regarding matters that will assist the auditor in determining whether to accept the engagement.
Which is the first step in the audit engagement?
Step 1: Define Audit Objectives
Prior to the audit, AMAS conducts a preliminary planning and information gathering phase. The assigned auditor defines the audit objectives and likely scope of the audit. The auditor starts to develop the audit program to define the audit testing procedures.
When must an auditor accept an audit engagement offer?
Auditors should only accept a new audit engagement, or continue an existing audit engagement if the 'preconditions for an audit' required by ISA 210 Agreeing the terms of audit engagements are present.
| 
