acc309 audit planning and analytical procedures

100問 • 1年前

問題一覧

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the

acceptable audit risk.

The first phase in planning an audit and designing an audit approach is to

accept the client and perform initial audit planning.

_______ is the risk that the financial statements contain a material misstatement due to fraud or error prior to the audit.

Risk of material misstatement

In what order should the following steps occur? A. Set preliminary judgment of materiality and performance materiality. B. Understand the clients business and industry. C. Perform preliminary analytical procedures. D. Accept the client and perform initial audit planning.

D, B, C, A

The auditor uses knowledge gained from the understanding of the client's business and industry to assess

client business risk.

When an auditor sets a low acceptable audit risk, it means that he wants to be more certain that the financial statements are not materially misstated.

TRUE

As acceptable audit risk is decreased, the likely cost of conducting an audit increases.

TRUE

Assessing acceptable audit risk, client business risk, and risk of material misstatement helps determine the audit procedures that will be needed.

TRUE

A 100 % audit risk is complete certainty.

FALSE

Initial audit planning involves four matters. Which of the following is not one of these?

Request that bank balances be confirmed.

Smith, CPA, has requested permission to communicate with the predecessor auditor in order to review certain workpapers for high risk accounts for a new audit client. The new audit client's refusal to allow this communication to occur would impact Smith's decision concerning

the desirability of accepting the prospective engagement.

When dealing with audit risk,

if the auditor concludes that acceptable audit risk is low, but the client is still acceptable, the auditor may still accept the engagement but increase the fee proposed to the client.

A written understanding detailing what the auditor expects from the client in performing an audit will normally be expressed in the

engagement letter.

For public companies, the ________ is responsible for hiring the auditor as required by the Sarbanes-Oxley Act.

client's audit committee

Which of the following statements is true regarding communications between predecessor and successor auditors?

The predecessor's response can be limited to stating that no information will be provided.

The purpose of an engagement letter is to

document the terms of the engagement.

The written communication stating the auditor cannot guarantee that all acts of fraud will be discovered is found in the

engagement letter.

Which of the following normally signs the engagement letter for an audit of a private company?

management

The two major factors affecting acceptable audit risk are

the likely statement users and their intended uses of the statements.

An engagement letter sent to a publicly held audit client usually would not include a(n)

statement that management advisory services would be made available upon request.

The preliminary audit strategy

guides the development of the audit plan.

The purpose of the requirement in having communication between the predecessor and successor auditors is to

help the successor auditor to evaluate whether to accept the engagement.

The predecessor auditor is required to respond to the request of the successor auditor for information, but the response can be limited to stating that no information will be provided when

there are actual or potential legal problems between the client and the predecessor.

Which of the following best expresses the understanding of the terms of the engagement that exist between the client and the CPA firm?

Auditors assert that their primary responsibility is to plan and perform the audit in order to provide reasonable assurance as to the detection of material misstatement due to error or fraud.

When selecting staff for the audit engagement

staff assigned to the audit must be knowledgeable about the client's industry.

When developing the overall strategy for the audit, the auditor will

determine if any audit specialists will be required.

For prospective clients that have previously been audited by another CPA firm, the predecessor auditor must initiate the communication with the successor auditor.

FALSE

When a successor auditor contacts a company's previous auditor, the predecessor auditor is required to respond fully and without limit to the request for information.

FALSE

A predecessor auditor who has been contacted by a successor auditor for information about the client does not have to obtain permission from the former client before providing any confidential information to the successor auditor because the confidentiality requirement does not extend to former clients.

FALSE

An auditor must evaluate a specialist's professional qualifications and understand the objectives of the specialist's work.

TRUE

Because of audit risk, some CPA firms now refuse any new clients in certain high-risk industries.

TRUE

An engagement letter establishes a clear understanding of the terms of the engagement between the client and the auditor.

TRUE

Because auditors are responsible for having appropriate competence and capabilities to perform an audit, auditors are not normally permitted to consult with outside specialists during an audit engagement.

FALSE

If a prospective client has been audited in the past, the successor auditor will typically rely solely on the representations about the client by the predecessor auditor.

FALSE

A major consideration in audit staffing is the need for continuity from year to year.

TRUE

When a successor auditor requests information from a company's previous auditor, and there are legal problems or disputes between the client and the predecessor auditor, the predecessor auditor's response to the new auditor may be limited to stating that no information will be provided.

TRUE

Staff assigned to an audit engagement must be knowledgeable about the client's industry.

TRUE

In order to obtain an understanding of the client's business, the audit firm will consider

the client's business risk and the risk of material misstatements in the financial statements.

Most auditors assess the risk of material misstatement as high for related parties and related-party transactions because

of the lack of independence between the parties.

A tour of the client's facilities provides the auditor an opportunity to

all of the above

The auditor determines that Matthews Company occupies the 3rd floor of an office tower for which it pays no rent. The most likely explanation is

a related party transaction in which a major shareholder owns the office tower.

An official record of meetings of the board of directors and stockholders is included in the corporate

minutes.

A related party transaction may be indicated when another company

subsidizes certain operating expenses of the company.

Which of the following is an accurate statement regarding a public company's code of ethics?

The SEC requires companies to disclose amendments and waivers to the code of ethics for the CEO, CFO and principal accounting officer.

An auditor should examine minutes of the board of directors' meetings

through the date of the audit report.

Which of the following would most likely not be classified as a related-party transaction?

an advance of one week's salary to an employee

Related party

disclosures include the nature of the related party relationship and a description of the transaction.

Auditors should understand client objectives related to

all of the above.

When analyzing a client's performance measurement system,

ratio analysis and benchmarking against key competitors are utilized.

Auditors should obtain copies of the client's code of ethics and minutes of the meetings of the board of directors to aid in their understanding of the company's management and governance structure.

TRUE

Many risks are common to all clients in certain industries.

TRUE

Transactions with related parties must be disclosed in the financial statements if they are deemed to be material.

TRUE

All known related parties must be identified and included in the auditor's permanent files related to the client.

TRUE

Because of the lack of independence between related parties, the Sarbanes-Oxley Act prohibits all related party transactions.

FALSE

Management's philosophy and operating style influence the risk of material misstatements in the financial statements.

TRUE

The auditor should read the corporate minutes to obtain authorizations and other information that is relevant to performing the audit.

TRUE

Material transactions between the client and the client's related parties must be disclosed in the auditor's report.

FALSE

A tour of the client's facilities can help the auditor assess physical safeguards over assets and interpret accounting data related to assets such as factory equipment.

TRUE

Operations are approaches followed by the entity to achieve organizational objectives.

FALSE

Which of the following is a correct statement regarding analytical procedures?

In identifying areas of specific risk, the auditor is likely to focus on the liquidity activity ratios.

Which of the following would not be classified as an analytical procedure?

reconciling fixed asset dispositions with the fixed asset ledger

When performing planning analytical procedures for a client the auditor detected that the gross profit percentage had declined by 50% from the previous year to the year currently under audit. The auditor should

investigate the possibility the client may have made an error in their cost of goods sold computation.

Which is a liquidity activity ratio?

inventory turnover

When using financial ratios, the most important comparisons are to those of previous years for the company and to industry averages or similar companies for the same year.

TRUE

Auditors perform preliminary analytical procedures to better understand the client's business and to assess client business risk.

TRUE

In order to be meaningful, a company's ratios should be compared to their prior year's ratios, not industry benchmarks.

FALSE

Preliminary analytical procedures can help the auditor assess client business risk.

TRUE

Auditing standards define ________ as the magnitude of misstatements that individually, or when aggregated with other misstatements, could reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.

materiality

Which of the following is part of planning?

Set materiality for the financial statements as a whole.

When dealing with materiality,

the auditor must bring any material misstatements to the client's attention.

________ materiality is materiality for segments of the audit.

Performance

The first step in applying materiality is to determine performance materiality.

FALSE

Audit standards require the auditor to consider materiality early in the audit. Which statement(s) regarding preliminary materiality are true? I. Preliminary materiality may change during the engagement. II. Preliminary materiality is the maximum amount by which the auditor believes the financials could be misstated and still not affect the decisions of reasonable users.

both I and II

Why do auditors establish a preliminary judgment about materiality?

so the client can know what records to make available to the auditor

If an auditor establishes a relatively high level for materiality, then the auditor will

accumulate less evidence than if a lower level had been set.

Which of the following is a reason that the auditors may change the preliminary judgment about materiality?

all of the above

Which of the following is the primary basis used to decide materiality for a profit-oriented entity?

net income before tax

Which of the following is the primary basis used to decide materiality for a profit-oriented entity?

net income before tax

Auditing standards ________ that the basis used to determine the preliminary judgment about materiality be documented in the audit files.

require

Amounts involving fraud are usually considered ________ important than unintentional errors of equal dollar amounts.

Qualitative factors can affect an auditor's assessment of materiality. Which of the following statements is true? I. Misstatements that are otherwise immaterial may be material if they affect earnings trends. II. Misstatements that are otherwise minor may be material if there are possible consequences arising from contractual obligations.

I and II

The five steps in applying materiality are listed below in random order. 1. Estimate the combined misstatement. 2. Estimate the total misstatement in the segment. 3. Set materiality for the financial statements as a whole. 4. Determine performance materiality. 5. Compare combined estimate with preliminary judgment about materiality. The first three steps in correct sequence would be

3, 4, 2

Which of the following statements is not correct?

The most important base used as the criterion for deciding materiality is total assets.

When setting a preliminary judgment about materiality,

more evidence is required for a low dollar amount than for a high dollar amount.

Lewis Corporation has a few large accounts receivable that total one million dollars, whereas Clark Corporation has many small accounts receivable that total one million dollars. Misstatement in any one account is more significant for Lewis corporation because of the concept of

materiality.

When determining materiality,

the application of guidelines requires considerable professional judgment.

Determining materiality requires professional judgment.

TRUE

The auditor's preliminary judgment about materiality is the maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decisions of reasonable users.

TRUE

Net assets are the most often used base for deciding materiality.

FALSE

Amounts involving fraud are not usually considered qualitative factors affecting the preliminary materiality judgment.

FALSE

CPA firms can establish policy guidelines to help their auditors determine materiality.

TRUE

Statements on Auditing Standards provide detailed, objective guidance on how auditors are to establish a preliminary materiality level, thus eliminating the need for subjective auditor judgment in this task.

FALSE

If the preliminary judgment of materiality increases, the amount of audit evidence required will decrease.

TRUE

Net income before taxes is the normal base used to determine materiality for a not-for-profit organization.

FALSE

The amount(s) set by the auditor at less than the materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole is referred to as

performance materiality.

Auditors generally allocate the preliminary judgment about materiality to the:

balance sheet only.

Which of the following is an incorrect statement regarding the allocation of the preliminary judgment about materiality to balance sheet accounts?

The allocation has virtually no effect on audit costs because the auditor must collect sufficient appropriate audit evidence.

Which of the following statements is true concerning the allocation of preliminary materiality?

The PCAOB term used when preliminary materiality is allocated to segments is tolerable misstatement

Which of the following statements is false?

Either an overstatement of an asset account or an overstatement of a liability account would have the same effect on the income statement.

100

When allocating performance materiality,

professional judgment is critical.

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問題一覧

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the

acceptable audit risk.

The first phase in planning an audit and designing an audit approach is to

accept the client and perform initial audit planning.

_______ is the risk that the financial statements contain a material misstatement due to fraud or error prior to the audit.

Risk of material misstatement

D, B, C, A

The auditor uses knowledge gained from the understanding of the client's business and industry to assess

client business risk.

When an auditor sets a low acceptable audit risk, it means that he wants to be more certain that the financial statements are not materially misstated.

TRUE

As acceptable audit risk is decreased, the likely cost of conducting an audit increases.

TRUE

Assessing acceptable audit risk, client business risk, and risk of material misstatement helps determine the audit procedures that will be needed.

TRUE

A 100 % audit risk is complete certainty.

FALSE

Initial audit planning involves four matters. Which of the following is not one of these?

Request that bank balances be confirmed.

the desirability of accepting the prospective engagement.

When dealing with audit risk,

if the auditor concludes that acceptable audit risk is low, but the client is still acceptable, the auditor may still accept the engagement but increase the fee proposed to the client.

A written understanding detailing what the auditor expects from the client in performing an audit will normally be expressed in the

engagement letter.

For public companies, the ________ is responsible for hiring the auditor as required by the Sarbanes-Oxley Act.

client's audit committee

Which of the following statements is true regarding communications between predecessor and successor auditors?

The predecessor's response can be limited to stating that no information will be provided.

The purpose of an engagement letter is to

document the terms of the engagement.

The written communication stating the auditor cannot guarantee that all acts of fraud will be discovered is found in the

engagement letter.

Which of the following normally signs the engagement letter for an audit of a private company?

management

The two major factors affecting acceptable audit risk are

the likely statement users and their intended uses of the statements.

An engagement letter sent to a publicly held audit client usually would not include a(n)

statement that management advisory services would be made available upon request.

The preliminary audit strategy

guides the development of the audit plan.

The purpose of the requirement in having communication between the predecessor and successor auditors is to

help the successor auditor to evaluate whether to accept the engagement.

The predecessor auditor is required to respond to the request of the successor auditor for information, but the response can be limited to stating that no information will be provided when

there are actual or potential legal problems between the client and the predecessor.

Which of the following best expresses the understanding of the terms of the engagement that exist between the client and the CPA firm?

Auditors assert that their primary responsibility is to plan and perform the audit in order to provide reasonable assurance as to the detection of material misstatement due to error or fraud.

When selecting staff for the audit engagement

staff assigned to the audit must be knowledgeable about the client's industry.

When developing the overall strategy for the audit, the auditor will

determine if any audit specialists will be required.

For prospective clients that have previously been audited by another CPA firm, the predecessor auditor must initiate the communication with the successor auditor.

FALSE

When a successor auditor contacts a company's previous auditor, the predecessor auditor is required to respond fully and without limit to the request for information.

FALSE

An auditor must evaluate a specialist's professional qualifications and understand the objectives of the specialist's work.

TRUE

Because of audit risk, some CPA firms now refuse any new clients in certain high-risk industries.

TRUE

An engagement letter establishes a clear understanding of the terms of the engagement between the client and the auditor.

TRUE

FALSE

If a prospective client has been audited in the past, the successor auditor will typically rely solely on the representations about the client by the predecessor auditor.

FALSE

A major consideration in audit staffing is the need for continuity from year to year.

TRUE

Staff assigned to an audit engagement must be knowledgeable about the client's industry.

TRUE

In order to obtain an understanding of the client's business, the audit firm will consider

the client's business risk and the risk of material misstatements in the financial statements.

Most auditors assess the risk of material misstatement as high for related parties and related-party transactions because

of the lack of independence between the parties.

A tour of the client's facilities provides the auditor an opportunity to

all of the above

The auditor determines that Matthews Company occupies the 3rd floor of an office tower for which it pays no rent. The most likely explanation is

a related party transaction in which a major shareholder owns the office tower.

An official record of meetings of the board of directors and stockholders is included in the corporate

minutes.

A related party transaction may be indicated when another company

subsidizes certain operating expenses of the company.

Which of the following is an accurate statement regarding a public company's code of ethics?

The SEC requires companies to disclose amendments and waivers to the code of ethics for the CEO, CFO and principal accounting officer.

An auditor should examine minutes of the board of directors' meetings

through the date of the audit report.

Which of the following would most likely not be classified as a related-party transaction?

an advance of one week's salary to an employee

Related party

disclosures include the nature of the related party relationship and a description of the transaction.

Auditors should understand client objectives related to

all of the above.

When analyzing a client's performance measurement system,

ratio analysis and benchmarking against key competitors are utilized.

Auditors should obtain copies of the client's code of ethics and minutes of the meetings of the board of directors to aid in their understanding of the company's management and governance structure.

TRUE

Many risks are common to all clients in certain industries.

TRUE

Transactions with related parties must be disclosed in the financial statements if they are deemed to be material.

TRUE

All known related parties must be identified and included in the auditor's permanent files related to the client.

TRUE

Because of the lack of independence between related parties, the Sarbanes-Oxley Act prohibits all related party transactions.

FALSE

Management's philosophy and operating style influence the risk of material misstatements in the financial statements.

TRUE

The auditor should read the corporate minutes to obtain authorizations and other information that is relevant to performing the audit.

TRUE

Material transactions between the client and the client's related parties must be disclosed in the auditor's report.

FALSE

A tour of the client's facilities can help the auditor assess physical safeguards over assets and interpret accounting data related to assets such as factory equipment.

TRUE

Operations are approaches followed by the entity to achieve organizational objectives.

FALSE

Which of the following is a correct statement regarding analytical procedures?

In identifying areas of specific risk, the auditor is likely to focus on the liquidity activity ratios.

Which of the following would not be classified as an analytical procedure?

reconciling fixed asset dispositions with the fixed asset ledger

investigate the possibility the client may have made an error in their cost of goods sold computation.

Which is a liquidity activity ratio?

inventory turnover

When using financial ratios, the most important comparisons are to those of previous years for the company and to industry averages or similar companies for the same year.

TRUE

Auditors perform preliminary analytical procedures to better understand the client's business and to assess client business risk.

TRUE

In order to be meaningful, a company's ratios should be compared to their prior year's ratios, not industry benchmarks.

FALSE

Preliminary analytical procedures can help the auditor assess client business risk.

TRUE

materiality

Which of the following is part of planning?

Set materiality for the financial statements as a whole.

When dealing with materiality,

the auditor must bring any material misstatements to the client's attention.

________ materiality is materiality for segments of the audit.

Performance

The first step in applying materiality is to determine performance materiality.

FALSE

both I and II

Why do auditors establish a preliminary judgment about materiality?

so the client can know what records to make available to the auditor

If an auditor establishes a relatively high level for materiality, then the auditor will

accumulate less evidence than if a lower level had been set.

Which of the following is a reason that the auditors may change the preliminary judgment about materiality?

all of the above

Which of the following is the primary basis used to decide materiality for a profit-oriented entity?

net income before tax

Which of the following is the primary basis used to decide materiality for a profit-oriented entity?

net income before tax

Auditing standards ________ that the basis used to determine the preliminary judgment about materiality be documented in the audit files.

require

Amounts involving fraud are usually considered ________ important than unintentional errors of equal dollar amounts.

I and II

3, 4, 2

Which of the following statements is not correct?

The most important base used as the criterion for deciding materiality is total assets.

When setting a preliminary judgment about materiality,

more evidence is required for a low dollar amount than for a high dollar amount.

materiality.

When determining materiality,

the application of guidelines requires considerable professional judgment.

Determining materiality requires professional judgment.

TRUE

Net assets are the most often used base for deciding materiality.

FALSE

Amounts involving fraud are not usually considered qualitative factors affecting the preliminary materiality judgment.

FALSE

CPA firms can establish policy guidelines to help their auditors determine materiality.

TRUE

FALSE

If the preliminary judgment of materiality increases, the amount of audit evidence required will decrease.

TRUE

Net income before taxes is the normal base used to determine materiality for a not-for-profit organization.

FALSE

performance materiality.

Auditors generally allocate the preliminary judgment about materiality to the:

balance sheet only.

Which of the following is an incorrect statement regarding the allocation of the preliminary judgment about materiality to balance sheet accounts?

The allocation has virtually no effect on audit costs because the auditor must collect sufficient appropriate audit evidence.

Which of the following statements is true concerning the allocation of preliminary materiality?

The PCAOB term used when preliminary materiality is allocated to segments is tolerable misstatement

Which of the following statements is false?

Either an overstatement of an asset account or an overstatement of a liability account would have the same effect on the income statement.

100

When allocating performance materiality,

professional judgment is critical.