Audit Test 2

The negative request form of accounts receivable confirmation may be used when the
Riskof Material
Consideration
Number of
Small
by the
Misstatement is
Balances is
Recipient is
A.
High
Few
Likely
B.
High
Many
Likely
C.
Low
Few
Unlikely
D.
Low
Many
Likely

...

An auditor is required to establish an understanding in writing with a client regarding the services to be performed for each engagement. This understanding generally includes
A. The auditor's responsibility for ensuring that the audit committee is aware

A. The auditor's responsibility for ensuring that the audit committee is aware of any significant deficiencies or material weaknesses in control that come to the auditor's attention.

An auditor's engagement letter most likely will include
A. The auditor's preliminary assessment of the risk factors relating to misstatements arising from fraudulent financial reporting.
B. A request for permission to contact the client's lawyer for assis

C. Management's acknowledgment of its responsibility for maintaining effective internal control.

Which of the following statements would least likely appear in an auditor's engagement letter?
A. After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement.
B. Fe

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

The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the
A. Engagement letter.
B. Introductory paragraph of the auditor's report.
C. Management representation letter.
D. Scope paragraph of the auditor's report

A. Engagement letter.

Which of the following factors most likely would cause an auditor to decline a new audit engagement?
A. An inability to perform preliminary analytical procedures before assessing control risk.
B. Failure of management to satisfy the preconditions for an a

B. Failure of management to satisfy the preconditions for an audit.

In assessing whether to accept a client for an audit engagement, a CPA should consider the
Client's
CPA's
Business Risk
Business Risk
A.
Yes
No
B.
Yes
Yes
C.
No
Yes
D.
No
No

B.
Yes
Yes

Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?
A. Staff will need to be rescheduled to cover this new client.
B. There will be a client-imposed scope limitation.
C. The client's financial re

B. There will be a client-imposed scope limitation.

Before accepting an engagement to audit a new client, an auditor is required to
A. Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan.
B. Discuss the management representation letter with the prospectiv

D. Make inquiries of the predecessor auditor after obtaining the consent of the prospective client.

In an audit based on International Standards on Auditing (ISAs), a successor auditor would normally become satisfied with opening balances by
A. Interviewing the client.
B. Reviewing the predecessor's working papers.
C. Auditing the prior year's financial

B. Reviewing the predecessor's working papers.

Ordinarily, the predecessor auditor permits the auditor to review the predecessor's audit documentation relating to
Contingencies
Balance Sheet Accounts
A.
Yes
Yes
B.
No
No
C.
Yes
No
D.
No
Yes

A.
Yes
Yes

Which of the following circumstances would permit an independent auditor to accept an engagement after the close of the fiscal year?
A. An expectation of the effectiveness of internal control.
B. Issuance of a disclaimer of opinion as a result of inabilit

C. Remedy of limitations resulting from accepting the engagement after the close of the end of the year, such as those relating to the existence of physical inventory.

Upon discovering material misstatements in a client's financial statements that the client would not revise, a predecessor auditor withdrew from the engagement. If asked by the auditor about the termination of the engagement, the predecessor auditor shoul

A. Suggest that the auditor obtain the client's permission to discuss the reasons.

Which of the following is correct regarding the communication between successor and predecessor auditors?
A. The successor auditor should request permission from the prospective client to make an inquiry of the predecessor auditor.
B. The client should be

A. The successor auditor should request permission from the prospective client to make an inquiry of the predecessor auditor.

Which of the following is required documentation in an audit in accordance with auditing standards?
A. A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of entity personnel.
B. A flowchart or narrative o

D. An audit plan documenting the procedures to be used to reduce audit risk.

Early appointment of the auditor enables preliminary work to be performed by the auditor. This benefits the client because it permits the audit to be performed in
A. Accordance with generally accepted auditing standards.
B. A more thorough manner.
C. Acco

D. A more efficient manner.

With respect to the auditor's planning of a year-end audit, which of the following statements is always true?
A. An engagement should not be accepted after the fiscal year end.
B. It is an acceptable practice to carry out part of the audit at interim date

B. It is an acceptable practice to carry out part of the audit at interim dates.

The auditor should establish an overall audit strategy. Which one of the following statements is most consistent with this requirement?
A. The auditor should plan the audit so that it will be performed effectively.
B. The auditor must be independent of th

A. The auditor should plan the audit so that it will be performed effectively.

In developing an audit plan, an auditor should
A. Determine whether the allowance for sampling risk exceeds the achieved upper precision limit.
B. Perform risk assessment procedures.
C. Evaluate findings from substantive procedures performed at interim da

B. Perform risk assessment procedures.

Which of the following is an auditor least likely to perform in planning a financial statement audit?
A. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity.
B. Selecting a sample of vendors' i

B. Selecting a sample of vendors' invoices for comparison with receiving reports.

In developing written audit plans, an auditor should design specific audit procedures that relate primarily to the
A. Financial statement assertions.
B. Timing of the audit.
C. Financial statements as a whole.
D. Costs and benefits of gathering evidence.

A. Financial statement assertions.

In planning the audit engagement, the auditor should consider each of the following except
A. Anticipated levels of audit risk and materiality.
B. The auditor's independence.
C. The kind of opinion (unmodified, qualified, or adverse) that is likely to be

C. The kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed.

Which of the following is an effective audit planning and control procedure that helps prevent misunderstandings and inefficient use of audit personnel?
A. Provide the client with copies of the audit plans to be used during the audit.
B. Make copies of th

D. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other information.

Audit planning for an initial audit most likely includes
A. Obtaining an engagement letter prepared by the auditee.
B. Determining the opinion to be expressed.
C. Performing procedures involving opening balances.
D. Selecting a sample of invoices for comp

C. Performing procedures involving opening balances.

Which of the following factors does a CPA ordinarily consider in the planning stage of an audit engagement?
Financial statement accounts likely to contain a misstatement.
Conditions that require extension of audit tests.
A. I only.
B. Both I and II.
C. II

B. Both I and II.

One of the primary roles of an engagement work program is to
A. Provide for a standardized approach to the engagement.
B. Serve as a tool for planning and conducting engagement work.
C. Assess the risks associated with the activity under review.
D. Docume

B. Serve as a tool for planning and conducting engagement work.

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?
A. The auditor's judgment.
B. The audit documentation.
C. Auditing standards.

A. The auditor's judgment.

Financial statement audit plans usually should be developed
A. After obtaining an understanding of the information and communication and control activities components of internal control.
B. Prior to performing risk assessment procedures.
C. After the aud

C. After the auditor has established the overall audit strategy.

Which of the following is an aspect of scheduling and controlling the audit engagement?
A. Write a conclusion in the audit documentation indicating how the results of the audit will affect the auditor's report.
B. Include in the engagement letter an estim

C. Include in the audit plan a column for estimated and actual time.

The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA

A. Document the details of the disagreement with the conclusion reached.

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
A. Pending legal matters to be included in the inquiry of the client's attorney.
B. Procedures

D. Timing of inventory observation procedures to be performed.

Which of the following is an engagement attribute for an audit of an entity that processes most of its financial data in electronic form without any paper documentation?
A. Discrete phases of planning, interim, and year-end fieldwork.
B. Increased effort

D. Performance of audit tests on a continuous basis.

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the
A. Results are consistent with the conclusions to be presented in the auditor's report.
B. Audit procedures performe

A. Results are consistent with the conclusions to be presented in the auditor's report.

The in-charge auditor for an audit of an issuer most likely has a supervisory responsibility to explain to the staff assistants
A. How the results of various auditing procedures performed by the assistants should be evaluated.
B. What benefits may be atta

A. How the results of various auditing procedures performed by the assistants should be evaluated.

Analytical procedures are required for which of the following?
A. Client retention decision.
B. Tests of balances.
C. Internal control evaluation.
D. Audit planning.

D. Audit planning.

The audit risk against which the auditor and those who rely on his or her opinion require reasonable protection is a combination of two separate risks at the assertion level. The first risk (consisting of inherent risk and control risk) is that balances,

C. Material misstatements that occur will not be detected by the audit.

Some account balances, such as those for pensions or leases, are the results of complex calculations. The susceptibility to material misstatements in these types of accounts is defined as
A. Audit risk.
B. Detection risk.
C. Sampling risk.
D. Inherent ris

D. Inherent risk.

As the acceptable level of detection risk decreases, an auditor may change the
A. Timing of tests of controls by performing them at several dates rather than at one time.
B. Assessed level of inherent risk to a higher amount.
C. Nature of substantive proc

C. Nature of substantive procedures from a less effective to a more effective procedure.

Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality for the financial statements as a whole?
A. The contents of the representation letter.
B. The anticipated sample size of the planne

D. The entity's year-to-date financial results and position.

Audit risk at the assertion level consists of inherent risk, control risk, and detection risk. Which of the following statements is true?
A. The existing levels of inherent risk, control risk, and detection risk can be changed at the discretion of the aud

C. Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.

The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is
A. Control risk.
B. Detection risk.
C. Audit risk.
D. Inherent risk.

B. Detection risk.

The acceptable level of detection risk is inversely related to the
A. Risk of failing to discover material misstatements.
B. Assurance provided by substantive procedures.
C. Preliminary judgment about materiality levels.
D. Risk of misapplying auditing pr

B. Assurance provided by substantive procedures.

Which of the following audit risk components may be assessed in nonquantitative terms?
Control
Detection
Inherent
Risk
Risk
Risk
A.
Yes
Yes
No
B.
No
Yes
Yes
C.
Yes
Yes
Yes
D.
Yes
No
Yes

C.
Yes
Yes
Yes

The concepts of audit risk and materiality are interrelated and must be considered together by the auditor. Which of the following is true?
A. If misstatements are not important individually but are important in the aggregate, the concept of materiality d

B. The phrase in the auditor's report "present fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America" indicates the auditor's belief that the financial statements as a whole are not m

When expressing an unmodified opinion, the auditor who evaluates the audit findings should determine whether
A. The amount of identified misstatement is acknowledged and recorded by the client.
B. Estimates of total misstatement include the amounts of adj

D. Uncorrected misstatements are material.

When planning an audit, an auditor should
A. Determine materiality for the financial statements as a whole.
B. Consider whether substantive procedures may be reduced based on the results of the internal control questionnaire.
C. Conclude whether changes i

A. Determine materiality for the financial statements as a whole.

A client decides not to correct misstatements communicated by the auditor that collectively are not material and wants the auditor to issue the report based on the uncorrected numbers. Which of the following statements is correct regarding the financial s

B. The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.

Madison Corporation has a few large accounts receivable that total $1,000,000. Nassau Corporation has a great number of small accounts receivable that also total $1,000,000. The importance of a misstatement in any one account is therefore greater for Madi

A. Materiality.

Which of the following statements about materiality is most likely to be true?
A. Materiality is measured according to specific AICPA standards.
B. Performance materiality is less than materiality for the financial statements as a whole.
C. Materiality re

B. Performance materiality is less than materiality for the financial statements as a whole.

Which of the following types of risks most likely would increase if accounts receivable are confirmed 3 months before year end?
A. Inherent.
B. Business.
C. Control.
D. Detection.

D. Detection.

Which of the following statements is true concerning analytical procedures used as risk assessment procedures?
A. Analytical procedures used as risk assessment procedures ordinarily use data aggregated at a high level.
B. Analytical procedures usually inv

A. Analytical procedures used as risk assessment procedures ordinarily use data aggregated at a high level.

Which of the following procedures is the auditor most likely to perform after accepting an initial audit engagement?
A. Consult with and review the work of the predecessor auditor prior to discussing the engagement with the client management.
B. Tour the

B. Tour the client's facilities.

Analytical procedures used as risk assessment procedures should
A. Provide a basis for the opinion.
B. Assist in evaluating controls.
C. Focus on forming an overall conclusion.
D. Address the risk of material misstatement of revenue due to fraudulent fina

D. Address the risk of material misstatement of revenue due to fraudulent financial reporting.

Prior to beginning a new audit engagement in which a CPA does not have experience in the client's industry, the CPA should
A. Obtain knowledge of industry, regulatory, and other external factors.
B. Engage financial experts familiar with the industry.
C.

A. Obtain knowledge of industry, regulatory, and other external factors.

To obtain an understanding of a continuing client in planning an audit, an auditor most likely would
A. Reevaluate the risks of material misstatement.
B. Read specialized industry journals.
C. Read internal audit reports.
D. Perform tests of details of tr

C. Read internal audit reports.

A CPA wishes to determine how various issuers have complied with the disclosure requirements of a new financial accounting standard. Which of the following information sources would the CPA most likely consult for this information?
A. AICPA Codification o

C. AICPA Accounting Trends and Techniques.

An auditor most likely obtains an understanding of a new client to
A. Identify areas of audit emphasis.
B. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated.
C. Make constru

A. Identify areas of audit emphasis.

The components of internal control include
A. Control activities that identify, capture, and exchange information.
B. Monitoring of controls that sets the tone of the organization.
C. A process of managing risks relevant to preparing financial statements.

C. A process of managing risks relevant to preparing financial statements.

The objective of performing analytical procedures as risk assessment procedures in an audit is to identify
A. Recorded transactions that were not properly authorized.
B. Noncompliance with laws and regulations that went undetected because of internal cont

C. Unusual transactions and events.

When an auditor obtains an understanding of the entity and its environment, including its internal control, which of the following is the most likely order of performing the steps A through C below?
A
=
Tests of controls
B
=
Preparation of a flowchart doc

C. BAC.

An auditor is planning an audit engagement for a new client in a business that is unfamiliar to the auditor. Which of the following would be the least useful source of information for the auditor during the preliminary planning stage, when the auditor is

A. Results of performing further audit procedures.

Which of the following would be least likely to be comparable between similar corporations in the same industry line of business?
A. Return on total assets before interest and taxes.
B. Operating cycle.
C. Earnings per share.
D. Accounts receivable turnov

C. Earnings per share.

Analytical procedures can best be categorized as
A. Substantive procedures.
B. Tests of controls.
C. Qualitative tests.
D. Budget comparisons.

A. Substantive procedures.

Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except
A. Study of the relationships of elements of financial data that woul

C. Tracing transactions through the system to determine whether procedures are being applied as prescribed.

Which nonfinancial information is an auditor most likely to consider in performing analytical procedures?
A. Number of employees.
B. Objectivity of audit committee members.
C. Turnover of personnel in the sales department.
D. Management's plan to repurcha

A. Number of employees.

The objective of analytical procedures performed as risk assessment procedures is to
A. Enhance the auditor's understanding of the client's business.
B. Identify material weaknesses in internal control.
C. Evaluate the adequacy of evidence gathered in res

A. Enhance the auditor's understanding of the client's business.

Which of the following statements about analytical procedures is true?
A. Analytical procedures usually are effective and efficient for tests of controls.
B. Analytical procedures may be omitted entirely for some financial statement audits.
C. Analytical

D. Analytical procedures alone may provide the appropriate level of assurance for some assertions.

Analytical procedures performed to assist in forming an overall conclusion suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that
A. Additional audit procedures are required.
B. The communica

A. Additional audit procedures are required.

Analytical procedures are most appropriate when testing which of the following types of transactions?
A. Payroll and benefit liabilities.
B. Acquisitions and disposals of fixed assets.
C. Noncurrent debt transactions.
D. Operating expense transactions.

D. Operating expense transactions.

According to professional standards, analytical procedures are least likely to be applied to
A. Compile financial statements.
B. Review financial statements or interim financial information.
C. Assist in forming an overall conclusion.
D. Test disclosures

A. Compile financial statements.

Which result of an analytical procedure suggests the existence of obsolete merchandise?
A. Decrease in the ratio of inventory to accounts payable.
B. Decrease in the ratio of inventory to accounts receivable.
C. Decrease in the ratio of gross profit to sa

D. Decrease in the inventory turnover rate.

A basic premise underlying analytical procedures is that
A. Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.
B. The study of financial ratios is an acceptable alternati

A. Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent
To Assist in
As Risk
As
Forming an
Assessment
Substantive
Overall
Procedures
Procedures
Conclusion
A.
No
Yes
No

Yes
No
Yes

Which of the following factors has the least influence on an auditor's consideration of the reliability of data for purposes of analytical procedures?
A. Whether the data were subjected to audit testing in the current or prior year.
B. Whether the data we

B. Whether the data were processed in a computer system or in a manual accounting system.

Which of the following is the most reliable analytical approach to verification of the year-end financial statement balances of a wholesale business?
A. Verify FICA tax liability by multiplying total payroll costs by the FICA contribution rate in effect d

D. Verify commission expense by multiplying sales revenue by the company's standard commission rate.

For the fiscal year ending December 31 of the previous year and for the current year, Justin Co. has net sales of $1,000,000 and $2,000,000; average gross receivables of $100,000 and $300,000; and an allowance for uncollectible accounts receivable of $30,

C. Accounts receivable turnovers are 10.0 and 6.7, and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.17, respectively. Examine allowance for possible understatement of the allowance.

An auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the
A. Availability of data aggregated at a high level.
B. Timing of tests performed af

C. Auditor's determination about whether audit risk can be sufficiently reduced.

An auditor's preliminary analysis of accounts receivable turnover revealed the following rates over these accounting periods:
Year 3
Year 2
Year 1
4.3
6.2
7.3
Which of the following is the most likely cause of the decrease in accounts receivable turnover?

B. Liberalization of credit policy.

An auditor discovers that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This trend may indicate that
A. Fictitious credit sales have been recorded during the year.
B. The client recently tight

A. Fictitious credit sales have been recorded during the year.

Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the ratio of gross profit to sales suggests which of the following possibilities?
A. Unrecorded purchases.
B. Fictitious sales.
C. Unrecorded sales.
D.

C. Unrecorded sales.

Analytical procedures used to form an overall audit conclusion generally include
A. Gathering evidence concerning account balances that have not changed from the prior year.
B. Considering unusual or unexpected account balances that were not previously id

B. Considering unusual or unexpected account balances that were not previously identified.

The auditor is evaluating the effectiveness of a sales commission plan adopted 12 months earlier. An audit procedure likely to provide strong evidence of the plan's effectiveness is to
A. Compare monthly selling costs of this year with those of the 2 prec

D. Regress monthly indices of external economic conditions against sales for the 2 preceding years and compare predictions with reported sales.

The objective of performing analytical procedures in planning an audit is to identify the existence of
A. Recorded transactions that were not properly authorized.
B. Noncompliance with laws and regulations that went undetected because of internal control

D. Unusual transactions and events.

Which of the following statements is correct regarding the predictability of analytical procedures in a financial statement audit?
A. Relationships involving transactions subject to management discretion tend to be more predictable than automated transact

D. Relationships involving income statement accounts tend to be more predictable than relationships involving only balance sheet accounts.

Which of the following would be considered an analytical procedure?
A. Developing the current year's expected net sales based on the entity's sales trend of prior years.
B. Examining a sample of paid vendors' invoices for proper approval by an authorized

A. Developing the current year's expected net sales based on the entity's sales trend of prior years.

Which of the following steps should be performed first in applying analytical procedures?
A. Compare the client's recorded balance or ratio with the expectation.
B. Investigate and evaluate significant differences from the expectation.
C. Develop an expec

C. Develop an expectation of a balance or ratio by using relationships that are expected to exist.

Which of the following is a true statement about an auditor's responsibility regarding consideration of fraud in a financial statement audit?
A. The auditor should consider the client's internal control and plan and perform the audit to provide absolute a

C. The auditor should assess the risks of material misstatement due to fraud.

Which of the following is considered a fraudulent activity?
A. A mistake in the application of accounting principles relating to amount, classification, manner of presentation, or disclosure.
B. A mistake in gathering or processing accounting data from wh

C. Misappropriation of assets.

Because of the risk of material misstatement due to fraud, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of
A. Impartial conservatism.
B. Professional skepticism.

B. Professional skepticism.

Which of the following statements reflects an auditor's responsibility for detecting fraud and errors?
A. An auditor should plan the audit to detect errors and fraud that are caused by departures from the applicable financial reporting framework.
B. An au

D. An auditor should design the audit to provide reasonable assurance of detecting fraud and errors that are material to the financial statements.

Three conditions are generally present in the client's organization when fraud occurs. Those conditions include each of the following except a(n)
A. Incentive or pressure to commit fraud.
B. Attitude or rationalization about the act of fraud.
C. Professio

C. Professional skepticism about the likelihood of fraud.

Certain individuals may have an attitude, character, or set of values that permit them to rationalize fraud. Moreover, individuals may have an incentive or be under pressure to commit fraud, or circumstances may provide an opportunity. The auditor's conce

C. Consists of many individuals that make operating and financing decisions.

Which of the following circumstances most likely will cause an auditor to consider whether material misstatements due to fraud exist in an entity's financial statements?
A. Control deficiencies previously communicated to management are not corrected.
B. T

C. Transactions selected for testing are not supported by proper documentation.

Which of the following characteristics most likely will heighten an auditor's concern about the risk of material misstatements due to fraud in an entity's financial statements?
A. The entity's industry is experiencing declining customer demand.
B. Employe

A. The entity's industry is experiencing declining customer demand.

Which of the following circumstances most likely will cause an auditor to suspect that material misstatements exist in a client's financial statements?
A. The assumptions used in developing the prior year's accounting estimates have changed.
B. Negative c

C. Differences between reconciliations of control accounts and subsidiary records are not investigated.

Which of the following circumstances would an auditor most likely consider a risk factor relating to misstatements arising from fraudulent financial reporting?
A. The entity distributes financial forecasts to financial analysts that predict conservative o

B. Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices.

Which action regarding fraud is an activity related to performance of risk assessment procedures?
A. Document the results of procedures used to address the risk of fraud.
B. Consider whether estimates prepared and recorded by management could indicate a b

D. Discussions among the engagement team members regarding the risks of material misstatement due to fraud.

Disclosure of possible fraud to parties other than the client's senior management and those charged with governance ordinarily is not part of an auditor's responsibility. However, to which of the following outside parties may a duty to disclose possible f

A. I, II, and III.

During the consideration of fraud in a financial statement audit, the auditor should identify and assess risks that may result in material misstatements due to fraud. This assessment
A. Follows the auditor's determination that the related controls are ope

B. Is based on evaluating whether the entity's related controls have been suitably designed and implemented.

Which of the following statements describes why a properly planned and performed audit may not detect a material misstatement due to fraud?
A. An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar respo

C. Audit procedures that are effective for detecting an error may be ineffective for detecting fraud that is concealed through collusion.

Which of the following situations represents a risk factor that relates to misstatements arising from misappropriation of assets?
A. A high turnover of senior management.
B. A strained relationship between management and the predecessor auditor.
C. A lack

C. A lack of independent checks.

Which of the following procedures will an auditor most likely perform when evaluating audit evidence at the completion of the audit?
A. Obtain assurance from the entity's attorney that all material litigation has been disclosed in the financial statements

C. Consider whether the results of audit procedures affect the assessment of the identified risks of material misstatement due to fraud.

Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be performed?
A. Management is dominated by one person who is also the majority shareholder.
B. There is a substanti

B. There is a substantial risk of intentional misapplication of accounting principles.

Which of the following circumstances is most likely to cause an auditor to change an assessment of the risk of material misstatement of the financial statements due to fraud?
A. Property and equipment are usually sold at a loss before being fully deprecia

C. Unusual discrepancies between the entity's records and confirmation replies.

Moor, CPA, discovers a likely fraud during an audit but concludes that its effects, if any, could not be so material as to affect the opinion. Moor most likely should
A. Confer with the client about the additional audit procedures necessary to establish t

C. Report the finding to the appropriate representatives of the client with the recommendation that it be pursued to a conclusion.

An auditor's consideration of the risk of material misstatement due to fraud and the results of audit tests indicate a significant risk of fraud. The auditor should
A. Express either a qualified or an adverse opinion.
B. Inform proper authorities outside

C. Consider withdrawing from the engagement and communicating the reasons for withdrawal to those charged with governance.

An auditor has withdrawn from an audit engagement of an issuer after finding fraud that may materially affect the financial statements. The auditor should set forth the reasons and findings in communication to the
A. PCAOB.
B. Client's legal counsel.
C. S

D. Board of directors.

Which of the following must an auditor document with respect to the consideration of fraud in a financial statement audit?
A. Reasons for not identifying improper revenue recognition as a fraud risk.
B. Instances of the auditor's exercise of professional

A. Reasons for not identifying improper revenue recognition as a fraud risk.

Which of the following parties should an auditor notify first when discovering an immaterial fraud is committed by an accounting clerk?
A. The client's legal counsel.
B. The audit committee.
C. An appropriate level of management.
D. The client's internal

C. An appropriate level of management.

The independent auditor should understand the internal audit function as it relates to internal control because
A. The procedures performed by the internal audit staff may eliminate the independent auditor's need for considering internal control.
B. The w

B. The work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures.

Which of the following is a false statement about the relationship of the internal auditor and the scope of the external audit of a company's financial statements?
A. The internal auditors may determine the extent to which audit procedures should be emplo

A. The internal auditors may determine the extent to which audit procedures should be employed by the external auditor.

In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity's financial statements most likely considers the
A. Results of the tests of transactions recently performed by the internal auditors.
B. Materiality of the a

D. Internal auditing standards developed by The Institute of Internal Auditors.

If the auditors plan to use the work of the internal auditors to obtain audit evidence or to provide direct assistance, they should assess the internal auditors'
A. Independence and review skills.
B. Training and supervisory skills.
C. Efficiency and expe

D. Competence and objectivity.

For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective?
Materiality of
Evaluation of Significant
Misstatements
Accounting Estimates
A.
Yes
N

B.
No
No

In assessing the competence and objectivity of an entity's internal auditor, an independent auditor would least likely consider information obtained from
A. Previous experience with the internal auditor.
B. The results of analytical procedures.
C. Discuss

B. The results of analytical procedures.

Internal auditing can affect the scope of the external auditor's audit of financial statements by
A. Allowing the external auditor to limit his or her audit to substantive testing.
B. Decreasing the external auditor's need to perform detailed tests.
C. El

B. Decreasing the external auditor's need to perform detailed tests.

In assessing the competence of an internal auditor, an independent CPA most likely would obtain information about the
A. Organization's commitment to integrity and ethical values.
B. Quality of the internal auditor's documentation.
C. Organizational level

B. Quality of the internal auditor's documentation.

Which of the following is a false statement about the use of the internal auditor's work by the auditor?
A. The ISAs state that, when specific work of the internal auditor is to be used, it should be evaluated and tested.
B. GAAS do not allow the auditor

C. The ISAs do not allow the auditor to use the work of the internal auditor.

During an audit, an internal auditor may provide direct assistance to an independent CPA in
Obtaining an
Performing
Performing
Understanding of
Tests of
Substantive
Internal Control
Controls
Tests
A.
Yes
Yes
No
B.
Yes
Yes
Yes
C.
Yes
No
No
D.
No
No
No

B.
Yes
Yes
Yes

Which of the following statements is correct regarding an independent auditor's reliance on a client's internal audit staff?
A. An independent auditor should assess the organizational status of the director of internal audit.
B. An independent auditor sho

A. An independent auditor should assess the organizational status of the director of internal audit.

Which of the following statements is true about the use of the work of an auditor's specialist?
A. The auditor is required to perform substantive procedures to verify the specialist's assumptions and findings.
B. The auditor must keep client information c

D. The auditor should obtain an understanding of the methods and assumptions used by the specialist.

An auditor referred to the findings of an auditor's external specialist in the auditor's report. This may be an appropriate reporting practice if the
A. Auditor, as a result of the specialist's findings, adds a paragraph emphasizing a matter regarding the

B. Auditor's report contains a qualified opinion.

Which of the following is not considered an auditor's specialist?
A. Tax attorney.
B. Actuary.
C. Appraiser.
D. Internal auditor.

D. Internal auditor.

In using the work of an auditor's external specialist, an agreement should exist between the auditor and the specialist as to the nature of the specialist's work. This agreement most likely should include
A. A statement that the specialist assumes no resp

C. The applicability of the same confidentiality requirements to the auditor and the specialist.

When a management's specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialist's work is acceptable if
A. The auditor conducted the same audit tests and procedures as would have been applicable if the

A. The auditor conducted the same audit tests and procedures as would have been applicable if the client employees took the physical inventory.

Which of the following steps should an auditor perform first to determine the existence of related parties?
A. Examine invoices, contracts, and purchasing orders.
B. Review proxy and other materials filed with the SEC.
C. Review the company's business str

D. Inquire about the existence of related parties from management.

Which of the following would not necessarily be a related party transaction?
A. Sale of land to the corporation by the spouse of a director.
B. A sale to another corporation with a similar name.
C. A purchase from another corporation that is controlled by

B. A sale to another corporation with a similar name.

Which of the following statements is true about related party transactions?
A. An auditor should substantiate that related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions.
B. In the absence of evi

D. The auditor should consider whether an identified related party transaction outside the normal course of business is appropriately accounted for and disclosed.

After identifying a significant related party transaction outside the entity's normal course of business, an auditor should
A. Add an emphasis-of-matter paragraph to the auditor's report to explain the transaction.
B. Perform analytical procedures to iden

D. Evaluate the business purpose of the transaction.

Ajax, Inc., is an affiliate of the audit client and is audited by another firm of auditors. Which of the following is most likely to be used by the auditor of the client to obtain assurance that all guarantees of the affiliate's indebtedness have been det

C. Review client minutes and obtain a representation letter.

In the absence of evidence to the contrary, transactions with related parties should not be assumed to be outside the normal course of business. The auditor should, however, be aware of the possibility that transactions with related parties may have been

D. Mutual benefit to both parties.

An auditor searching for related party transactions should obtain an understanding of each subsidiary's relationship to the total entity because
A. This may permit the audit of interentity account balances to be performed as of concurrent dates.
B. This m

D. The business structure may be deliberately designed to obscure related party transactions.

An auditor would be most likely to consider modifying an otherwise unmodified opinion if the client's financial statements include a note on related party transactions
A. Disclosing compensating balance arrangements maintained for the benefit of related p

C. Representing without substantiation that certain related party transactions were consummated on terms equivalent to those obtainable in transactions with unrelated parties.

Disclosure in financial statements of a reporting entity that has participated in related party transactions that are material, individually or in the aggregate, should include all of the following except
A. The nature of the relationship.
B. The dollar a

C. A statement that the transactions would have occurred regardless of whether the parties were related.

When auditing related party transactions, an auditor places primary emphasis on
A. Assessing the risks of material misstatement of related party transactions.
B. Verifying the valuation of the related party transactions.
C. Ascertaining the rights and obl

A. Assessing the risks of material misstatement of related party transactions.

When one party can significantly influence the management or operating policies of the other to the extent that one of the transacting parties might be prevented from fully pursuing its separate interests, the parties are related for purposes of AU-C 550.

D. The U.S. government.

Which of the following is an unusual procedure that may be deemed necessary to discover the effect of a related party transaction?
A. Inspect or confirm the transferability and value of collateral.
B. Determine whether the transaction has been approved by

D. Confirm significant information with third parties other than banks or attorneys.

U.S. GAAP ordinarily require material related party transactions to be
A. Separately disclosed and accounted for differently from transactions between unrelated parties.
B. Accounted for on the same basis as transactions between unrelated parties and not

D. Separately disclosed but not accounted for differently from transactions between unrelated parties.

Which of the following procedures would an auditor ordinarily perform first in evaluating the reasonableness of management's accounting estimates?
A. Review transactions occurring prior to the date of the auditor's report that indicate variations from exp

C. Obtain an understanding of how management makes its estimates.

Which of the following procedures will most likely assist an auditor in determining whether management has identified all accounting estimates that could be material to the financial statements?
A. Confirm inventories at locations outside the entity.
B. I

C. Review the lawyer's letter for information about litigation.

As part of the audit of fair value estimates and disclosures, an auditor may need to test the entity's significant assumptions. In these circumstances, the auditor should
A. Obtain sufficient evidence to express an opinion on the assumptions.
B. Apply aud

D. Evaluate whether the assumptions individually and as a whole form a reasonable basis for the fair value estimates.

During the audit of fair value estimates and disclosures, the auditor most likely should
A. Focus primarily on the initial recording of transactions.
B. Use the understanding of the audited entity's process for determining fair value estimates to assess t

B. Use the understanding of the audited entity's process for determining fair value estimates to assess the risks of material misstatement.

The client has equity securities classified as available for sale. The auditor is most concerned about controls related to
A. The accrued interest receivable for the securities.
B. Why specific securities were purchased.
C. The determination of the fair v

C. The determination of the fair value measurements of the securities.

An auditor concludes that the omission of a substantive procedure considered necessary at the time of the audit may impair the auditor's current ability to support the previously expressed opinion. The auditor need not apply the omitted procedure if
A. Th

A. The results of other procedures that were applied tend to compensate for the procedure omitted.

On March 15, Year 2, Kent, CPA, expressed an unmodified opinion on a client's audited financial statements for the year ended December 31, Year 1. On May 4, Year 2, Kent's internal inspection program disclosed that engagement personnel failed to observe t

A. Undertake to apply alternative procedures that would provide a satisfactory basis for the unmodified opinion.

Which of the following circumstances most likely would require an auditor to apply an omitted procedure after the audit report issuance date?
A. The auditor's report is unsupported as a result of the omitted procedure.
B. Generally accepted accounting pri

A. The auditor's report is unsupported as a result of the omitted procedure.

The PCAOB's AS No. 5 states that internal controls may be preventive or detective. Which of the following controls is preventive?
A. Preparing bank reconciliations.
B. Using batch totals.
C. Requiring two persons to open mail.
D. Reconciling the accounts

C. Requiring two persons to open mail.

Internal control cannot be designed to provide reasonable assurance regarding the achievement of objectives concerning
A. Compliance with the Foreign Corrupt Practices Act of 1977.
B. Reducing the cost of an external audit.
C. Availability of reliable dat

D. Elimination of all fraud.

The organization chart is a graphic representation of the
A. Locus of decision making.
B. Formal authority structure.
C. Communications channels.
D. Power structure.

B. Formal authority structure.

Directors, management, external auditors, and internal auditors all play important roles in creating proper control processes. Senior management is primarily responsible for
A. Implementing and monitoring controls designed by the board of directors.
B. Re

C. Establishing risk management and control processes.

In an audit of financial statements, an auditor's primary consideration regarding an internal control is whether the control
A. Reflects management's philosophy and operating style.
B. Affects management's financial statement assertions.
C. Relates to ope

B. Affects management's financial statement assertions.

The primary reason to establish internal control is to
A. Ensure the accuracy, reliability, and timeliness of information.
B. Provide reasonable assurance that the objectives of the organization are achieved.
C. Encourage compliance with organizational ob

B. Provide reasonable assurance that the objectives of the organization are achieved.

Effective internal control
A. Eliminates risk and potential loss to the organization.
B. Is unaffected by changing circumstances and conditions encountered by the organization.
C. Cannot be circumvented by management.
D. Reduces the need for management to

D. Reduces the need for management to review exception reports on a day-to-day basis.

Internal control is a function of management, and effective control is based upon the concept of charge and discharge of responsibility and duty. Which of the following is one of the overriding principles of internal control?
A. Responsibility for account

D. Responsibility for the performance of each duty must be fixed.

Which of the following statements about internal control is true?
A. Exceptionally effective internal control is enough for the auditor to eliminate substantive procedures on a significant account balance.
B. A limitation of internal control is that manag

B. A limitation of internal control is that management makes judgments about the extent of controls it implements.

Internal controls are designed to provide reasonable assurance that
A. Management's plans have not been circumvented by worker collusion.
B. Material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the

B. Material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties.

The design or operation of a control may not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. According to AU-C 265, this circumstance is a
A. C

D. Control deficiency.

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal control?
A. Faulty judgment.
B. Incompatible duties.
C. Management override.
D. Collusion among employees.

B. Incompatible duties.

Internal control can provide only reasonable assurance of achieving an entity's control objectives. The likelihood of achieving those objectives is affected by which limitation inherent to internal control?
A. The cost of internal control should not excee

A. The cost of internal control should not exceed its benefits.

An entity should consider the cost of a control in relationship to the risk. Which of the following controls best reflects this philosophy for a large dollar investment in heavy machine tools?
A. Placing security guards at every entrance 24 hours a day.
B

D. Imprinting a controlled identification number on each tool.

Which of the following items is an example of an inherent limitation in an internal control system?
A. Segregation of employee duties.
B. Understaffed internal audit functions.
C. Ineffective board of directors.
D. Human error in decision making.

D. Human error in decision making.

Which of the following best describe the interrelated components of internal control?
A. Risk assessment process, backup facilities, responsibility accounting, and natural laws.
B. Control environment; risk assessment process; control activities; the info

B. Control environment; risk assessment process; control activities; the information system, including related business processes; and monitoring of controls.

Which of the following are considered control environment factors?
Detection
Human Resources
Risk
Policies and Practices
A.
No
Yes
B.
Yes
No
C.
Yes
Yes
D.
No
No

A.
No
Yes

Control activities constitute one of the five components of internal control described in the COSO model. Control activities do not encompass
A. Physical controls.
B. Performance reviews.
C. Information processing.
D. An internal auditing function.

D. An internal auditing function.

Monitoring of controls is an important component of internal control. Which of the following items is not an example of monitoring?
A. Data processing management regularly generates exception reports for unusual transactions or volumes of transactions and

D. Data processing management regularly reconciles batch control totals for items processed with batch controls for items submitted.

Control activities include physical controls over access to and use of assets and records. A departure from the purpose of such procedures is that
A. Only salespersons and sales supervisors use sales department vehicles.
B. Access to the safe-deposit box

D. Only storeroom personnel and line supervisors have access to the raw materials storeroom.

Basic to a proper control environment are the quality and integrity of personnel who must perform the prescribed procedures. Which is not a factor in providing for competent personnel?
A. Performance evaluations.
B. Segregation of duties.
C. Hiring practi

B. Segregation of duties.

Proper segregation of duties reduces the opportunities to allow persons to be in positions both to
A. Journalize entries and prepare financial statements.
B. Establish internal control and authorize transactions.
C. Perpetrate and conceal fraud and error.

C. Perpetrate and conceal fraud and error.

Management's aggressive attitude toward financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when
A. The audit committee is active in overseeing the entity's finan

C. Management is dominated by one individual who is also a shareholder.

It is important for the auditor to consider the competence of the audit client's employees, because their competence bears directly and importantly upon the
A. Comparison of recorded accountability with assets.
B. Relationship of the costs of internal con

C. Achievement of the objectives of internal control.

Transaction authorization within an organization may be either specific or general. An example of specific transaction authorization is the
A. Establishment of sales prices for products to be sold to any customer.
B. Approval of a detailed construction bu

B. Approval of a detailed construction budget for a warehouse.

A proper segregation of duties requires that an individual
A. Maintaining custody of an asset be entitled to access the accounting records for the asset.
B. Authorizing a transaction maintain custody of the asset that resulted from the transaction.
C. Rec

C. Recording a transaction not compare the accounting record of the asset with the asset itself.

A small private entity may use less formal means to ensure that internal control objectives are achieved. For example, extensive accounting procedures, sophisticated accounting records, or formal controls are least likely to be needed if
A. The entity is

B. Management is closely involved in operations.

An auditor might consider the procedures performed by the internal auditors because
A. They are employees whose work must be reviewed during substantive testing.
B. Their degree of independence may be inferred from the nature of their work.
C. They are em

C. They are employees whose work may affect the nature, timing, and extent of audit procedures.

The frequency of the comparison of recorded accountability with assets (for the purpose of safeguarding assets) should be determined by
A. The auditor in consultation with client management.
B. The nature and amount of the asset and the cost of making the

B. The nature and amount of the asset and the cost of making the comparison.

For which of the following transactions would the auditor ordinarily have the greatest difficulty in obtaining assurance that internal control objectives are met?
A. Collection of contributions from the public by a not-for-profit organization.
B. Collecti

A. Collection of contributions from the public by a not-for-profit organization.

If internal control is properly designed, the same employee may be permitted to
A. Sign checks and also cancel supporting documents.
B. Reconcile the bank statements and also receive and deposit cash.
C. Approve vouchers for payment and also sign checks.

A. Sign checks and also cancel supporting documents.

Although substantive procedures may support the accuracy of underlying records, these tests frequently provide no affirmative evidence of segregation of duties because
A. The records may be accurate even though they are maintained by a person who performs

A. The records may be accurate even though they are maintained by a person who performs incompatible functions.

Organizational charts are useful to an independent external auditor because they
A. Ensure the proper division of responsibilities.
B. Depict all lines of organizational communication.
C. Provide a starting point for assessing the risk of material misstat

C. Provide a starting point for assessing the risk of material misstatement.

Audit evidence concerning undocumented monitoring controls ordinarily is best obtained by
A. Performing tests of transactions that corroborate management's financial statement assertions.
B. Developing audit objectives that reduce control risk.
C. Observi

C. Observing the employees as they apply controls.

Which of the following is a component of internal control?
A. Financial reporting.
B. Risk assessment.
C. Operating effectiveness.
D. Organizational structure.

B. Risk assessment.

Which of the following would an auditor most likely consider in evaluating the control environment of an audit client?
A. Overall employee satisfaction with assigned duties.
B. The number of CPAs in the accounting department.
C. Management's operating sty

C. Management's operating style.

The primary purpose of obtaining an understanding of the entity and its environment, including its internal control, is to provide an auditor with
A. Evidence to use in reducing detection risk.
B. A frame of reference within which to plan the audit.
C. In

B. A frame of reference within which to plan the audit.

As part of understanding internal control relevant to the audit of a non issuer, an auditor does not need to
A. Determine whether controls have been implemented.
B. Identify the risks of material misstatement.
C. Consider factors that affect the risks of

D. Obtain knowledge about the operating effectiveness of internal control.

A CPA's understanding of internal control in a financial statement audit of a nonissuer
A. Is usually more limited than that made in an examination of internal control integrated with an audit of financial statements.
B. Is usually more extensive than tha

A. Is usually more limited than that made in an examination of internal control integrated with an audit of financial statements.

A secondary result of the auditor's understanding of internal control in an audit of a nonissuer's financial statements is that the understanding may
A. Assure that management's procedures to detect all fraud are properly functioning.
B. Develop evidence

C. Bring to the auditor's attention possible control deficiencies.

The ultimate purpose of understanding internal control is to contribute to the auditor's evaluation of the risk that
A. Tests of controls may fail to identify controls relevant to assertions.
B. Material misstatements may exist in the financial statements

The ultimate purpose of understanding internal control is to contribute to the auditor's evaluation of the risk that
A. Tests of controls may fail to identify controls relevant to assertions.
B. Material misstatements may exist in the financial statements

After obtaining an understanding of the entity and its environment, including its internal control, the auditor assesses
A. Control risk and inherent risk to determine the acceptable level of detection risk.
B. Detection risk and inherent risk to determin

A. Control risk and inherent risk to determine the acceptable level of detection risk.

In obtaining an understanding of an issuer's internal control, an auditor does all the following except
A. Inspect documents.
B. Observe employees.
C. Perform a walkthrough of the transaction process.
D. Send confirmations to customers.

D. Send confirmations to customers.

Which of the following statements indicates the wrong way to use an internal control questionnaire?
A. Filling out the questionnaire during an interview with the person who has responsibility for the area that is being audited.
B. Supplementing the comple

D. Clarifying all answers with written remarks and explanations.

A financial statement auditor is considering internal control for a client with an information system that makes extensive use of information technology. Which of the following statements related to the understanding of internal control for this client is

A. The auditor must possess all the information technology skills necessary to complete the engagement.

The following are steps in the financial statement audit process:
Prepare flowchart
Gather exhibits of all documents
Interview personnel
The most logical sequence of steps is
A. III, II, I.
B. I, III, II.
C. I, II, III.
D. II, I, III.

A. III, II, I.

In obtaining an understanding of internal control, the auditor may trace several transactions through the control process, including how the transactions interface with any service organizations whose services are part of the information system. The prima

B. Determine whether the controls have been implemented.

When obtaining an understanding of an entity's internal control, an auditor should concentrate on their substance rather than their form because
A. The controls may be operating effectively but may not be documented.
B. Management may establish appropriat

B. Management may establish appropriate controls but not enforce compliance with them.

According to AU-C 315, Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, not all controls are relevant to a financial statement audit. Which one of the following would most likely be considered in an audit?
A.

B. Maintenance of control over unused checks.

In obtaining an understanding of a nonissuer's internal control in a financial statement audit, an auditor is not obligated to
A. Determine whether the controls have been implemented.
B. Search for significant deficiencies in the operation of internal con

B. Search for significant deficiencies in the operation of internal control.

Which of the following statements regarding auditor documentation of the understanding of the client's internal control components obtained to plan the audit is correct?
A. Documentation must include procedural write-ups.
B. No documentation is necessary

D. No one particular form of documentation is necessary, and the extent of documentation may vary.

An auditor should obtain an understanding of an entity's information system, including
A. Safeguards used to limit access to computer facilities.
B. Programs and controls intended to address the risks of fraud.
C. Process used to prepare significant accou

C. Process used to prepare significant accounting estimates.

The auditor's understanding of internal control is documented to substantiate
A. Adherence to procedures for effective and efficient management decision making.
B. Compliance with generally accepted auditing standards.
C. The fairness of the financial sta

B. Compliance with generally accepted auditing standards.

Which of the following is not a medium that can normally be used by an auditor to record information concerning internal control?
A. Flowchart.
B. Decision table.
C. Procedures manual.
D. Narrative memorandum.

C. Procedures manual.

A well-designed internal control questionnaire should
A. Elicit "yes" or "no" responses rather than narrative responses and be organized by department.
B. Be independent of the objectives of the audit.
C. Be a sufficient source of data for assessment of c

D. Help evaluate the effectiveness of internal control.

In order to obtain an initial understanding of internal control sufficient to assess the risk of material misstatement of the financial statements, an auditor would most likely perform which of the following procedures?
A. Risk-assessment procedures to ev

A. Risk-assessment procedures to evaluate the design of relevant controls.

When documenting internal control, the independent auditor sometimes uses a systems flowchart, which can best be described as a
A. Graphic illustration of the flow of operations that is used to replace the auditor's internal control questionnaire.
B. Pict

C. Symbolic representation of a system or series of sequential processes.

An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowcharts
A. Reduce the need to observe clients' employees performing routine tasks.
B. Provide a vis

B. Provide a visual depiction of clients' activities.

The normal sequence of documents and operations on a well-prepared systems flowchart is
A. Bottom to top and left to right.
B. Top to bottom and left to right.
C. Top to bottom and right to left.
D. Bottom to top and right to left.

B. Top to bottom and left to right.

The diamond-shaped symbol is commonly used in flowcharting to show or represent a
A. Process or a single step in a procedure or program.
B. Decision point, conditional testing, or branching.
C. Predefined process.
D. Terminal output display.

B. Decision point, conditional testing, or branching.

In connection with the consideration of internal control, an auditor encounters the following flowcharting symbols:
The auditor should conclude that a
A. Master file has been created by a manual operation.
B. Document has been generated by a computer oper

D. Document has been generated by a manual operation.

The correct labeling, in order, for the following flowchart symbols is
A. Manual operation, document, online storage, and entry operation.
B. Display, document, online storage, and entry operation.
C. Document, display, online storage, and entry operation

A. Manual operation, document, online storage, and entry operation.

Which one of the following best reflects the basic elements of a data flow diagram?
A. Data source, data destination, data flows, transformation processes, and data storage.
B. Data flows, data storage, and program flowchart.
C. Data flows, program flowch

A. Data source, data destination, data flows, transformation processes, and data storage.

Decision tables differ from program flowcharts in that decision tables emphasize
A. Cost-benefit factors justifying the program.
B. Logical relationships among conditions and actions.
C. Ease of manageability for complex programs.
D. The sequence in which

B. Logical relationships among conditions and actions.

The following is a section of a system flowchart for a payroll application:
Symbol X could represent
A. Unclaimed payroll checks.
B. Erroneous time cards.
C. Batched time cards.
D. An error report.

D. An error report.

A document flowchart represents the
A. Flow of forms that relate to a particular transaction through an organization.
B. Flow of data through a series of operations in an automated data processing system.
C. Possible combinations of alternative logic cond

A. Flow of forms that relate to a particular transaction through an organization.

An internal auditor is reviewing the following computer logic diagram:
This diagram represents which of the following?
A. Limit test.
B. Program loop step.
C. Balance test.
D. Data validity check.

B. Program loop step.

The symbol employed to determine if an employee's wages are above or below the maximum limit for FICA taxes is
A. square
B. rectangle
C. trapezoid
D. diamond

D. diamond

The graphic portrayal of the flow of data and the information processing of a system, including computer hardware, is best displayed in a
A. Program flowchart.
B. Data-flow diagram.
C. Gantt chart.
D. System flowchart.

D. System flowchart.

The symbol employed to represent the printing of the employees' paychecks by the computer is
A. square
B.
C. trapezoid
D. rectangle

A. square

Question: 216 The symbol employed to represent the employees' checks printed by the computer is
A.
B.
C.
D. Top of grand piano

D. Top of grand piano

The symbol used to represent the physical act of collecting employees' time cards for processing is
A. rhombus
B. trapezoid
C.
D. rectangle

B. trapezoid

The symbol used to represent the employees' payroll records stored on magnetic tape is
A. upside down triangle
B.
C. circle
D. wave looking thing

circle

The symbol used to represent the weekly payroll register generated by the computer is
A. grand piano
B. square
C. upside down triangle
D. circle

grand piano

The symbol used to represent the file of hard-copy, computer-generated payroll reports kept for future reference is
A. circle
B. upside down triangle
C.
D.

B. upside down triangle

Which of the following symbolic representations indicates that a sales invoice has been filed?
A. trapexiod to upside down triangle
B. grand piano to upside down traingle
C.
D.

B. grand piano to upside down traingle

The customer checks accompanied by the control tape (refer to Symbol A) should be
A. Accumulated for a week and then forwarded to the CFO for deposit weekly.
B. Forwarded to the CFO for deposit daily.
C. Taken by the mail clerk to the bank for deposit dai

B. Forwarded to the CFO for deposit daily.

The appropriate description that should be placed in Symbol B is
A. Keying and verifying.
B. Batch processing.
C. Collation of remittance advices.
D. Error correction.

A. Keying and verifying.

The next action to take with the customer remittance advices (refer to Symbol C) would be to
A. File them daily by batch number.
B. Forward them to the treasurer to compare with the monthly bank statement.
C. Discard them immediately.
D. Forward them to t

A. File them daily by batch number.

The appropriate description that should be placed in Symbol D is
A. Attach batch total to report and file.
B. Compare batch total and correct as necessary.
C. Reconcile cash balances.
D. Proof report.

B. Compare batch total and correct as necessary.

The appropriate description that should be placed in Symbol E is
A. Accounts receivable master file.
B. Remittance advice master file.
C. Cash projection file.
D. Bad debts master file.

A. Accounts receivable master file.

The ultimate purpose of understanding the entity and its environment and assessing the risks of material misstatement is to contribute to the auditor's assessment of the risk that
A. Material misstatements may exist in the financial statements.
B. Entity

A. Material misstatements may exist in the financial statements.

The risks of material misstatement (RMMs) should be assessed in terms of
A. Types of potential fraud.
B. Specific controls.
C. Financial statement assertions.
D. Control environment factors.

C. Financial statement assertions.

When assessing the risks of material misstatement at a low level, an auditor is required to document the auditor's
Understanding of
the Entity's Control
Overall
Responses to
Environment
Assessed Risks
A.
Yes
No
B.
No
No
C.
Yes
Yes
D.
No
Yes

C. Yes Yes

Which of the following is a step in an auditor's decision to rely on internal controls?
A. Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls.
B. Document that the additiona

C. Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls.

Which of the following statements about the auditor's response to assessed risks of material misstatement in a financial statement audit is true?
A. Reliance on internal control may be sufficient to allow the auditor to eliminate substantive testing for s

C. Risk assessment procedures performed to obtain an understanding of an entity's internal control also may serve as tests of controls.

Regardless of the assessed risks of material misstatement, an auditor should perform some
A. Analytical procedures to verify the design of controls.
B. Substantive procedures to restrict detection risk for significant transaction classes.
C. Tests of cont

B. Substantive procedures to restrict detection risk for significant transaction classes.

Based on an understanding of internal control completed at an interim date, the auditor assessed the risks of material misstatement at the relevant assertion level and performed interim substantive procedures. The records will most likely be tested again

C. The remaining period is long

The auditor should perform tests of controls when the auditor's risk assessment includes an expectation
A. That the controls are not suitably designed.
B. Of a low level of inherent risk.
C. That the controls are not being applied.
D. Of the operating eff

D. Of the operating effectiveness of internal control.

Which of the following procedures is not used in tests of controls over purchases?
A. Confirm inventory held in public warehouses.
B. Trace vouchers to entries in the vouchers register.
C. Examine vouchers and supporting documents for authorization.
D. Re

A. Confirm inventory held in public warehouses.

Tests of controls are concerned primarily with each of the following questions except
A. Were the controls approved by the board of directors?
B. How were the controls applied?
C. By whom were the controls applied?
D. Were the necessary controls consisten

A. Were the controls approved by the board of directors?

The auditor should perform tests of controls when the auditor's assessment of the risks of material misstatement includes an expectation of the operating effectiveness of internal control or when
A. The owner-manager performs virtually all the functions o

D. Substantive procedures alone cannot provide sufficient appropriate audit evidence at the relevant assertion level.

The objective of tests of details of transactions performed as tests of controls is to
A. Evaluate whether internal controls operated effectively.
B. Detect material misstatements in the account balances of the financial statements.
C. Monitor the design

A. Evaluate whether internal controls operated effectively.

To test the effectiveness of controls, an auditor ordinarily selects from a variety of techniques, including
A. Comparison and confirmation.
B. Inquiry and analytical procedures.
C. Inspection and verification.
D. Reperformance and observation.

D. Reperformance and observation.

An auditor wishes to evaluate the design and perform tests of controls over a client's cash disbursements procedures. If the controls leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
A. Observation and inqu

A. Observation and inquiry.

An auditor is least likely to test controls that provide for
A. Classification of revenue and expense transactions by product line.
B. Approval of the purchase and sale of trading securities.
C. Separation of the functions of recording disbursements and r

A. Classification of revenue and expense transactions by product line.

Which of the following procedures concerning accounts receivable is an auditor most likely to perform to obtain evidence in support of the effectiveness of controls?
A. Observing an entity's employee prepare the schedule of past due accounts receivable.
B

A. Observing an entity's employee prepare the schedule of past due accounts receivable.

In performing tests of controls, the auditor will normally find that
A. The rate of error in the sample exceeds the rate of deviations.
B. The level of inherent risk is directly proportional to the rate of error.
C. The rate of deviations in the sample ex

C. The rate of deviations in the sample exceeds the rate of error in the accounting records.

When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate?
A. Test the operating effectiveness of such controls in the current audit.
B. Document that relian

A. Test the operating effectiveness of such controls in the current audit.

How would an auditor of a nonissuer most appropriately respond to a heightened assessed risk of material misstatement?
A. By performing tests of controls at interim-and period-end dates.
B. By obtaining a management representation letter.
C. By assigning

C. By assigning more experienced staff or those with specialized skills to high-risk areas.

Tests of controls in a financial statement audit are least likely to be omitted with regard to
A. Subsequent events.
B. Accounts representing many transactions.
C. Accounts representing few transactions.
D. Accounts believed to be subject to ineffective c

B. Accounts representing many transactions.

A secondary result of the auditor's understanding of internal control for a nonissuer is that the understanding may
A. Develop evidence to support the assessed risks of material misstatement.
B. Provide a basis for determining the nature, timing, and exte

D. Bring to the auditor's attention possible control conditions required to be communicated to the client.

Which of the following issues related to internal control over financial reporting are required to be communicated in writing to management and those charged with governance?
I. Deficiencies in internal control
II. Significant deficiencies
III. Material w

D. II and III only.

Which of the following best describes the responsibility of an auditor of a private entity with respect to significant deficiencies and material weaknesses under AU-C 265, Communication of Internal Control Related Matters Identified in an Audit?
A. The co

A. The communication by the auditor must be in writing.

When communicating significant deficiencies in internal control noted in a financial statement audit of a nonissuer, the communication should indicate that
A. The expression of an unmodified opinion on the financial statements may be dependent on correcti

B. The purpose of the audit was to report on the financial statements, not to provide assurance on internal control.

Which of the following statements about an auditor's communication of internal control related matters identified in an audit of a nonissuer is true?
A. Significant deficiencies or material weaknesses may not be communicated in a document that contains su

C. The auditor should communicate significant internal control related matters no later than 60 days after the report release date.

Under the AICPA's auditing standards, which of the following statements about an auditor's communication of significant control deficiencies is true?
A. An auditor should communicate significant control deficiencies after tests of controls, but before com

D. An auditor's report on significant control deficiencies should include a restriction on the use of the report.

Which of the following representations should not be included in a written report on internal control related matters identified in an audit under the AICPA's auditing standards?
A. The auditor's consideration of internal control would not necessarily dis

D. There are no significant deficiencies or material weaknesses in the design or operation of internal control.

A CPA had previously communicated a significant control deficiency in connection with an audit of prior financial statements of a nonissuer. As of the current audit date, the deficiency has not been corrected. What communication should be made by the CPA?

D. The condition should be reported.

Which of the following matters is an auditor required to communicate to those in the entity charged with governance?
I. Disagreements with management about matters significant to the entity's financial statements that have been satisfactorily resolved
II.

D. Both I and II.

Which of the following matters will an auditor most likely communicate to those charged with governance?
A. Difficulties encountered in achieving a satisfactory response rate from the entity's customers in confirming accounts receivables.
B. A list of neg

D. The effects of significant accounting policies adopted by management in emerging areas for which no authoritative guidance exists.

Which of the following matters should an auditor communicate to those charged with governance?
A. The basis for assessing the risks of material misstatement when the auditor intends to rely on controls.
B. The justification for performing substantive proc

C. The process used by management in formulating sensitive accounting estimates.

Which of the following disagreements between the auditor and management do not have to be communicated by the auditor to those charged with governance?
A. Disagreements of the amount of the LIFO inventory layer based on preliminary information.
B. Disagre

A. Disagreements of the amount of the LIFO inventory layer based on preliminary information.

An auditor should communicate misstatements to those charged with governance
A. Even if they are clearly trivial.
B. If they are immaterial and corrected but frequently recurring.
C. If they are uncorrected.
D. If they were not recorded before the end of

C. If they are uncorrected.

In an audit engagement, should an auditor communicate the following matters to those charged with governance?
Auditor's Judgments
About the Quality
of the Client's
Accounting Principles
Issues Discussed
with Management
Prior to the
Auditor's Retention
A.

B. Yes Yes

An auditor is most likely to communicate to those charged with governance that
A. The auditor encountered significant difficulties during the audit.
B. The turnover in the accounting department was unusually high.
C. The auditor discovered subsequent even

A. The auditor encountered significant difficulties during the audit.

Which of the following is a false statement about the relationship of financial statement assertions and audit procedures?
A. Selection of tests of financial statement assertions should depend upon the understanding of internal control.
B. The auditor sho

D. The relationship between financial statement assertions and audit procedures should be one-to-one.

Most of the auditor's work in forming an opinion on financial statements consists of
A. Obtaining and evaluating audit evidence.
B. Comparing recorded accountability with assets.
C. Examining cash transactions.
D. Understanding internal control.

A. Obtaining and evaluating audit evidence.

Which of the following statements about audit evidence is true?
A. To be appropriate, audit evidence should be either persuasive or relevant but need not be both.
B. A client's accounting records can be sufficient audit evidence to support the financial s

D. The sufficiency and appropriateness of audit evidence is a matter of professional judgment.

The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of
A. Cutoffs.
B. Transactions.
C. Authorizations.
D. Costs.

B. Transactions.

The appropriateness of evidence available to an auditor is least likely to be affected by the
A. Timeliness of such audit evidence.
B. Relationship of the preparer of such evidence to the entity being audited.
C. Relevance of such evidence to the financia

D. Sampling method employed by the auditor to obtain a sample of such evidence.

In gathering evidence in the performance of substantive procedures, the auditor most likely
A. Expresses an adverse opinion if (s)he has substantial doubt as to any assertion of material significance.
B. Uses the test month approach.
C. Considers the clie

D. Relies on persuasive rather than conclusive evidence in the majority of cases.

AU-C 500 describes five generalizations about the reliability of evidence. The situations given below indicate the relative degrees of assurance provided by two types of evidence obtained in different situations. Which describes an exception to one of the

B. The report of an auditor's specialist regarding the valuation of a collection of paintings held as an investment provides greater assurance than the auditor's physical observation of the paintings.

Which of the following statements about evidence is true?
A. A client's accounting records cannot be considered sufficient appropriate audit evidence on which to base the auditor's opinion.
B. Appropriate evidence supporting management's assertions should

A. A client's accounting records cannot be considered sufficient appropriate audit evidence on which to base the auditor's opinion.

The most reliable forms of documentary evidence are those documents that are
A. Easily duplicated.
B. Internally generated.
C. Prenumbered.
D. Authorized by a responsible official.

D. Authorized by a responsible official.

Which of the following procedures would provide the most reliable audit evidence?
A. Analytical procedures performed by the auditor on the entity's trial balance.
B. Inspection of bank statements obtained directly from the client's financial institution.

B. Inspection of bank statements obtained directly from the client's financial institution.

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?
A. It is the

B. It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place.

Assuming a low assessed risk of material misstatement, which of the following audit procedures would be least likely to be performed?
A. Search for unrecorded cash receipts.
B. Confirmation of accounts receivable.
C. Physical inspection of a sample of inv

A. Search for unrecorded cash receipts.

Which of the following presumptions is least likely to relate to the reliability of audit evidence?
A. The auditor's direct personal knowledge obtained through observation and inspection is more persuasive than information obtained indirectly.
B. An audit

B. An auditor's opinion is formed within a reasonable time to achieve a balance between benefit and cost.

Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to provide a reasonable basis for an opinion?
A. Audit risk.
B. Auditor judgment.
C. Materiality.
D. Reasonable assurance.

B. Auditor judgment.

You have been assigned to audit the maintenance department of an organization. Which of the following is likely to produce the least reliable audit evidence?
A. Notes on discussions with mechanics in the maintenance operation.
B. A narrative covering revi

A. Notes on discussions with mechanics in the maintenance operation.

If an auditor conducts an audit of financial statements in accordance with applicable auditing standards, which of the following will the auditor most likely detect?
A. Misposting of recorded transactions.
B. Collusive fraud.
C. Unrecorded transactions.
D

A. Misposting of recorded transactions.

Each of the following might, by itself, form a valid basis for an auditor to decide to omit a procedure except for the
A. Assessment of the risks of material misstatement at a low level.
B. Difficulty and cost involved in testing a particular item.
C. Rel

B. Difficulty and cost involved in testing a particular item.

Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should
A. Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable.
B. Obtain written r

A. Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable.

A client uses a suspense account for unresolved questions whose final accounting has not been determined. If a balance remains in the suspense account at year-end, the auditor would be most concerned about
A. Suspense debits that the auditor verifies will

C. Suspense debits that management believes will benefit future operations.

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely will be included with the client's confirmation letter?
A. A client-prepared letter reminding

D. A client-prepared statement of account showing the details of the customer's account balance.

Which of the following statements is an auditor most likely to add to the negative form of confirmation of accounts receivable to encourage timely consideration by the recipient?
A. "This is not a request for payment; remittances should not be sent to our

B. "If you do not report any differences within 15 days, it will be assumed that this statement is correct.

Two assertions for which confirmation of accounts receivable balances provides primary evidence are
A. Existence and completeness.
B. Valuation and rights and obligations.
C. Rights and obligations and existence.
D. Completeness and valuation.

C. Rights and obligations and existence.

Auditors may use positive or negative forms of confirmation requests. An auditor most likely will use
A. A combination of the two forms, with the positive form used for trade balances and the negative form for other balances.
B. The positive form when the

C. The negative form for small balances.

In the confirmation of accounts receivable, the auditor would most likely
A. Require confirmation of all receivables from agencies of the federal government.
B. Request confirmation of a sample of the inactive accounts.
C. Require that confirmation reques

B. Request confirmation of a sample of the inactive accounts.

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because
A. Some recipients may report incorrect balances that require extensive follow-up.
B. The auditor cannot infer that all nonrespondents

B. The auditor cannot infer that all nonrespondents have verified their account information.

Confirmation of accounts receivable is a generally accepted auditing procedure. The presumption is that an auditor will request confirmation of accounts receivable. Confirmation is necessary when
A. Based on experience with similar engagements, responses

D. The combined assessed level of inherent and control risk is high.

To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would
A. Verify the sources and contents of the faxes in telephone calls to the senders.
B. Consider the faxes to be n

A. Verify the sources and contents of the faxes in telephone calls to the senders.

During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on January 9, Year 2." The auditor would most likely
A. Verify that the amount was receive

A. Verify that the amount was received.

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn of which of the following?
A. One of the cashiers

A. One of the cashiers has been covering a personal embezzlement by lapping.

Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?
A. Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner.
B. Restricting the select

D. Including a list of items or invoices that constitute the account balance.

Under which of the following circumstances would using the blank form of confirmation of accounts receivable most likely be preferable to other types of positive confirmations?
A. Prior years' audits indicate a pattern of overstatement of account balances

D. Recipients are likely to sign other types of positive confirmations without careful investigation.

Audit documentation that records the procedures used by the auditor to gather evidence should be
A. Considered the primary support for the financial statements being audited.
B. Destroyed when the audited entity ceases to be a client.
C. Designed to meet

C. Designed to meet the circumstances of the particular engagement.

An auditor's audit documentation will least likely show how the
A. Engagement was planned.
B. Significant issues were resolved.
C. Understanding of the client's internal control was obtained and the risks of material misstatement were assessed.
D. Client'

D. Client's schedules were prepared.

Which of the following documentation is not required for an audit in accordance with auditing standards?
A. The basis for the auditor's conclusions about the assessed risks of material misstatement.
B. A client letter that details the auditor's planned fi

B. A client letter that details the auditor's planned field work.

The PCAOB's AS No. 3, Audit Documentation, requires that a complete and final set of audit documentation be assembled for retention as of a date not more than 45 days after the audit report release date. After that date, audit documentation may
A. Be dele

C. Be added, but no audit documentation may be deleted or discarded.

Standardized working papers are often used, chiefly because they allow audit documentation to be prepared more
A. Professionally.
B. Neatly.
C. Efficiently.
D. Accurately.

C. Efficiently.

Which of the following is usually included or shown in the audit documentation?
A. Analyses that are designed to be a part of, or a substitute for, the client's accounting records.
B. Excerpts from authoritative pronouncements that support the underlying

D. A summary of how significant findings were addressed.

Although the quantity and content of audit documentation vary with each engagement, an auditor's permanent files most likely include
A. Prior years' accounts receivable confirmations that were classified as exceptions.
B. Analyses of capital stock and oth

B. Analyses of capital stock and other equity accounts.

Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to
A. Permit cross-referencing and simplify supervisory review.
B. Determine that working papers adequately support findings, conclusions, and reports.
C. E

A. Permit cross-referencing and simplify supervisory review.

The audit working paper that reflects the major components of an amount reported in the financial statements is the
A. Lead schedule.
B. Carryforward schedule.
C. Supporting schedule.
D. Interbank transfer schedule.

A. Lead schedule.

An auditor ordinarily uses a working trial balance resembling the financial statements without notes, but containing columns for
A. Reconciliations and tickmarks.
B. Cash flow increases and decreases.
C. Risk assessments and assertions.
D. Reclassificatio

D. Reclassifications and adjustments.

In the course of the audit of financial statements for the purpose of expressing an opinion, the auditor will normally prepare a schedule of uncorrected misstatements. The primary purpose served by this schedule is to
A. Summarize the corrections that mus

D. Identify the potential financial statement effects of misstatements that were not considered clearly trivial when discovered.

Using personal computers in auditing may affect the methods used to review the work of staff assistants because
A. Audit documentation may not contain readily observable details of calculations.
B. The audit standards for supervision may differ.
C. Superv

A. Audit documentation may not contain readily observable details of calculations.

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks t

A. Expanded to detail the assistant auditor's position and how the difference of opinion was resolved.

A CPA is conducting the first audit of a nonissuer's financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor's audit documentation. This procedure is
A. Required if the CPA is t

D. Acceptable if the client and the predecessor auditor agree to it.

Which of the following in a predecessor's audit documentation is the auditor least likely to be interested in reviewing?
A. Analysis of current balance sheet accounts.
B. Analysis of noncurrent balance sheet accounts.
C. Analysis of contingencies.
D. Anal

D. Analysis of income statement accounts.

After audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up audit documentation review. This second review usually focuses on
A. The materiality of the adjusting entries proposed by t

B. Whether the financial statements are consistent with the auditor's understanding of the entity.

Which of the following statements is most accurate regarding sufficient and appropriate documentation?
A. If additional evidence is required to document significant findings or issues, the original evidence is not considered sufficient and appropriate and

C. Sufficient and appropriate documentation should include evidence that it has been reviewed.