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- 1. Multiple ChoiceAn auditor has withdrawn from an audit engagement of a publicly held company after finding fraud that may materially affect the financial statements. The auditor should set forth the reasons and findings in correspondence with theSECClient's legal counselStock exchanges where the company's stock is tradedAudit committee of the board of directors
- 2. Multiple ChoiceWhen a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determiningWhether the predecessor's work should be utilized.Whether, in the predecessor's opinion, the financial statements are materially correctWhether, in the predecessor's opinion, the company's internal controls have been satisfactoryWhether the engagement should be accepted
- 3. Multiple ChoiceWhich of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement?Analysis of balance sheet accountsAnalysis of income statement accountsAll matters of continuing accounting significanceFacts that might bear on management integrity
- 4. Multiple ChoiceA successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor'sEngagement letterAudit working papersEngagement letter and audit working papersIt would not be typical to allow a review of either the engagement letter or the audit working papers.
- 5. Multiple ChoiceAn auditor is required to establish an understanding with a client regarding the responsibilities for each engagement. This understanding generally includesManagement's responsibility to guarantee that there are no material misstatements due to fraudThe auditor's responsibility to plan and perform the audit to provide reasonable, but not absolute, assurance of detecting material errors or fraud.Management's responsibility for providing the auditor with an assessment of the risk of material misstatement due to fraud.The auditor's responsibility for the fairness of the financial statements
- 6. Multiple ChoiceWhich of the following is not a concern as to whether a misstatement is qualitatively material?The misstatement hides a failure to meet analysts' expectationsThe misstatement is less than 5% of pretax incomeThe misstatement increases management's compensationThe misstatement changes a small amount of profit to a small reported loss
- 7. Multiple ChoiceIn assessing the competence of the internal audit function, an independent CPA most likely would obtain information about theQuality of the work of the internal audit functionOrganization's commitment to integrity and ethical valuesInfluence of management on the scope of the internal audit function dutiesOrganizational levels to which the internal audit function reports
- 8. Multiple ChoiceWhich of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?Perform detailed testing of the individual balance sheet accountsExamining documents to detect illegal acts having a material effect on the financial statements.Considering whether the client's accounting estimates are reasonable in the circumstancesDetermining the extent of involvement of the client's internal audit function
- 9. Multiple ChoiceThe in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistantsThat immaterial fraud is not to be reported to the client's audit committeeHow the results of various auditing procedures performed by the assistants should be evaluated.How the overall audit strategy will allow the firm to reach a sufficiently low level of audit riskHow overall materiality was selected.
- 10. Multiple ChoiceWhich of the following audit procedures would be least likely to disclose the existence of related party transactions of a client during the period under audit?Reading "conflict-of-interest" statements obtained by the client from its managementScanning accounting records for large transactions at or just prior to the end of the period under audit.Reading minutes of the Board of Directors meetings for authorization or discussion of material transactions.Confirming purchases and sales transactions with the vendors and/or customers involved.
- 11. Multiple ChoiceUnder the Sarbanes-Oxley Act, the audit committee of a public company has the following requirement(s):Each member of the committee must be a board member and shall be independentThe audit committee must preapprove all audit and nonaudit servicesThe audit committee must establish and maintain procedures to handle all issues that relate to accounting, internal control, and auditing.All of these
- 12. Multiple ChoiceWhich of the following relatively small misstatements most likely would have a material effect on an entity's financial statements?An illegal payment to a foreign official that was not recordedA piece of obsolete office equipment that was not retiredA petty cash fund disbursement that was not properly authorizedAn uncollectible account receivable that was not written-off
- 13. Multiple ChoiceWhich of the following is the most important qualitative factor that auditors should consider when making materiality judgments?A misstatement exceeded five percent of net incomeThe auditor also provides consulting services to the audit clientThe misstatement will cause the client to fail to meet an earnings forecastD. The audit committee is not well-educated about the accounting principle in question.
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