Auditing CH 2

According to PCAOB standards, each of the following items of information should be included in the documentation of an engagement quality review, except

An assessment by the engagement quality reviewer of the instances of fraud identified by the audit team

Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures?

Assigning personnel to engagements.

Dickens, a CPA firm's personnel partner, periodically studies the firm's personnel advancement experience to ascertain whether individuals meeting stating criteria are assigned increased degrees of responsibility. This is evidence of the CPA firm's adhere

Quality control standards.

Detection risk differs from both control risk and inherent risk in that detection risk:

Can be changed at the auditor's discretion.

As the acceptable level of detection risk decreases, the assurance directly provided from:

Substantive tests should increase.

Inherent risk and control risk differ from detection risk in that they:

Exist independently of the financial statement audit.

Which of the following factors most likely would cause a CPA not to accept a new audit engagement?

Management's unwillingness to make all financial records available to the CPA.

An auditor assesses control risk because it:

affects the level of detection risk that the auditor may accept.

On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed risk of material misstatement from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk

Decrease detection risk.

Management fraud generally refers to:

intentional distortions of financial statements

Auditors would use the enterprise risk model:

To evaluate management's risk assessment

In considering overall materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have a material effect on an entity's income statement but that misstatements would have to aggregate $20,000 to materially affect t

$10,000.

With respect to the concept of materiality, which of the following statements is correct?

None of these answers are correct.

An auditor has set the materiality level for the financial statements as a whole at $125,000. Which of the following misstatements would the auditor most likely consider material?

The client did not disclose $45,000 of related party transactions in the footnotes.

An audit engagement letter should normally include which of the following matters of agreement between the auditor and the client?

Schedules and analyses to be prepared by the client's employees.

An engagement letter generally includes which of the following?

None of these are correct.

Which of the following statements would least likely appear in an auditor's engagement letter?

After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement.

Which of the following is true about the timing of predecessor/successor communications?

They can occur both before and after the auditor accepts the engagement.

The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the:

Timing of inventory observation procedures to be performed.

Prior to commencing fieldwork, an auditor usually discusses the general audit strategy with the client's management. Which of the following matters do the auditor and management agree upon at this time?

The coordination of the assistance of the client's personnel in data preparation.

Below is an independent risk factors. Identify which of the following audit risk model components relates most directly to each risk factor.
Risk Factor: The allowance for doubtful accounts is based on significant assumptions made by management.

Inherent Risk

What term refers to the determination of the amount of time to spend testing the client's internal controls and conducting detailed testing of transactions and account balances?

Audit Strategy

Which of the following heavily influences the process of determining an audit strategy for an account or assertion?

All of these answers are correct.

A(an)______________ is an amount set by the auditor that is less than planning materiality and is used to make decisions about the extent of audit procedures for a particular class of transaction, account balance, or disclosure.

performance materiality.

Based on the following description of an events at an audit client, for each of the audit risk model components determine the most likely effect:
I = increase
D = decrease
N = no effect
C = cannot determine from information provided
DESCRIPTION: The compa

I I I C

Which of the following is not a required part of the understanding between the client and the auditor?

Management's responsibility to correct deficiencies in internal control identified by the auditor.

An auditor's engagement letter most likely would include a statement regarding:

Management's responsibility to provide certain written representations to the auditor.

Which of the following matters does an auditor usually include in the engagement letter?

Arrangements regarding fees and billing

Which of the following would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement?

Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years.

Which of the following procedures would a CPA most likely include in planning a financial statement audit?

Determine the extent of involvement of the client's internal auditors.

Analytical procedures used in planning an audit should focus on:

Enhancing the auditor's understanding of the client's business.

Which of the following is not true about quality control standards?

Risk assessment is one of the six interrelated elements of quality control.

One of an accounting firm's basic objectives is to provide professional services that conform to professional standards. Reasonable assurance of achieving this objective can be obtained by following

Standards within a system of quality control.

A basic objective of a CPA firm is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through

A system of quality control.

Below is an independent risk factors. Identify which of the following audit risk model components relates most directly to each risk factor.
Risk Factor: The audit plan omits several necessary audit procedures.

Detection Risk

Based on the following description of an events at an audit client, for each of the audit risk model components determine the most likely effect:
I = increase
D = decrease
N = no effect
C = cannot determine from information provided
DESCRIPTION: A continu

D, N or D, N, D

The second stage in audit risk assessment is to _______.

gain an understanding of the client's system of internal controls.

Which of the following is an amount set by the auditor that is used to make decisions about the extent of audit procedures for a particular class of transaction, account balance, or disclosure?

Performance materiality.

In order to maintain professional skepticism, an auditor must also maintain _______.

independence from management.

Auditors are experts in evidence collection and interpretation. In order to uncover fraud auditors need to be able to critically assess evidence that they collect. In particular, auditors need to be able to distinguish between errors and fraud.
Required:

3 4 8 3

Holding other planning considerations equal, a decrease in the amount of misstatement in a class of transactions that an auditor could tolerate most likely would cause the auditor to

Perform the planned auditing procedures closer to the balance sheet date.

State the effect on detection risk and planned evidence of changing the following factors while holding any other factor constant from the following options.
I = Increase
D = Decrease
N = No Effect
C = Cannot be determined
CHANGE: A decrease in control ri

I D

The auditor is not required to ask the predecessor auditor about:

the fees charged for the previous audit.

Which of the following is a definition of control risk?

The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls.

An auditor uses the assessed level of control risk to:

Determine the acceptable level of detection risk for financial statement assertions.

When inherent risk is high, there will need to be:

A lower assessment of audit risk: No
More evidence accumulated by the auditor: Yes

As the acceptable level of detection risk increases, an auditor may change the:

Timing of substantive tests from year-end to an interim date.

If new information becomes available that could require a reevaluation of the quantitative level of materiality applied during an audit of an issuer, then the auditor should:

Raise or lower the materiality level as appropriate to the situation.

An auditor of a nonissuer is most likely to conclude that a misstatement identified during an audit that is below the quantitative materiality limit is qualitatively material if it:

Changes the company's operating results from a net loss to a net income.

Which of the following relatively small misstatements most likely could have a material effect on an entity's financial statements?

An illegal payment to a foreign official that was not recorded.