Auditing Chapter 3 Quiz

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chapter 3 test 1

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

Management's disregard of its responsibility to maintain an adequate internal control environment.

Which of the following statements is correct with regard to the predecessor-successor communications?

The successor auditor should obtain permission from the client before contacting the predecessor auditor.

Which of the following statements best represents the reason why auditors prepare engagement letters to be signed by their clients?

They communicate and clarify the expectations and responsibilities of both the client and the auditor.

Which of the following factors would be of least importance to an auditor in determining how much reliance can be placed on the work of internal auditors?

The nature of the audit software documentation used by the internal auditors.

The audit committee of a company which is responsible for the appointment of the independent audit firm should consist of

Members of the board of directors who are not officers or employees.

Which of the following would most likely indicate the existence of related parties?

Borrowing money at an interest rate substantially below the prevailing market rate of interest.

Tests of controls include all of the following except:

Analytical procedures.

Which of the following would NOT be a typical supervisory activity for an audit?

Perform detailed testing of the accounts payable account.

The concept of materiality as it applies to a financial statement audit

Is determined, in part, based on how financial statement users may be influenced in making decisions.

According to the text, the first step in applying materiality to an audit is

To determine a materiality level for the overall financial statements.

For which laws and regulations does the auditor have the same responsibility as that for errors and fraud?

Laws and regulations that have a direct and material effect on the financial statements.

When establishing an understanding with the client regarding the terms of the engagement, all of the following should be discussed, except:

The agreed upon limits on auditor liability for an improper audit.

The preliminary engagement activities include all of the following except:

Ensure that there is an independent audit committee.

A dual-purpose test is

A procedure that serves as both a test of control and a substantive test of transactions.

When likely misstatements are greater than planned materiality, the auditor should

Request that the client adjust the financial statements AND Modify the opinion if the client will not adjust the financial statements.

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