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Terms in this set (33)
The ultimate purpose of assessing control risk in a financial statement audit is to contribute to the auditor's evaluation of the risk that
Material misstatements may exist in the financial statements.
Which of the following factors most likely would cause a CPA to decline to accept a new audit engagement?
Management is unwilling to permit inquiry of its legal counsel
Which of the following situations most likely represents the highest risk of a misstatement arising from misappropriations of assets?
A large number of bearer bonds on hand.
Which of the following steps should be performed first in applying analytical procedures?
Develop an expectation of a balance or ratio by using relationships that are expected to exist. 1st STEP DEVELOP EXPECTATION
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
Fictitious credit sales have been recorded during the year.
Which of the following information discovered during an audit most likely would raise a question concerning possible noncompliance with laws and regulations?
The entity prepared several large checks payable to cash during the year.
Which of the following analytical procedures most likely would be used during the planning stage of an audit?
Comparing current-year to prior-year sales volumes
Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatement arising from fraudulent financial reporting?
Management had frequent disputes with the auditor on accounting matters.
Which of the following factors most likely would influence an auditor's determination of the auditability of an entity's financial statements?
The destruction of the accounting records.
After testing a client's internal control activities, an auditor discovers a number of significant deficiencies in the operation of a client's internal controls. Under these circumstances, the auditor most likely would
Increase the assessment of control risk and increase the extent of substantive tests.
Which of the following parties should an auditor notify first when discovering an immaterial fraud is committed by an accounting clerk?
An appropriate level of management.
Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely will significantly increase opportunities for fraudulent financial reporting when
Management is dominated by one individual who is also a shareholder.
Which of the following would be considered an analytical procedure?
Comparing inventory balances to recent sales activities
Which of the following factors does a CPA ordinarily consider in the planning stage of an audit engagement?
1. Financial statement accounts likely to contain a misstatement.
2 Conditions that require extension of audit tests
Both I and II
Which of the following is a false statement about materiality?
An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.
An auditor is required to obtain an understanding of the entity's business, including business cycles and reasons for business fluctuations. What is the audit purpose most directly served by obtaining this understanding?
To assist the auditor to accurately interpret information obtained during an audit.
Each of the following is a type of known misstatement, except
Differences between management and the auditor's judgment regarding estimates
In developing an audit plan, an auditor should
Perform risk assessment procedures
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.
When an auditor becomes aware of a possible act of noncompliance with laws or regulations, the auditor should obtain an understanding of the nature of the act to
Evaluate the effect on the financial statements.
Which of the following is an important consideration when deciding the nature of tests to use in a financial statement audit?
The procedures to be applied on a particular engagement are a matter of the auditor's professional judgment.
When a CPA is associated with financial statements that do not comply with promulgated GAAP because the statements would be misleading without the departure, the CPA is not required to disclose
The reason the departure does not have a material effect on the statements.
Competence as an independent auditor includes all of the following except
A Warranting the infallibility of the work performed.THIS ONE
B Consulting others if additional technical information is needed.
C Having the technical qualifications to perform an engagement.
D Possessing the ability to supervise assistants.
Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected?
It is unlikely that sufficient appropriate audit evidence is available to support an opinion on the financial statements
The auditor should establish an overall audit strategy. Which one of the following statements is most consistent with this requirement?
The auditor should plan the audit so that it will be performed effectively.
An audit plan is developed and documented based on the overall audit strategy. It is more detailed than the audit strategy because it includes the nature, timing, and extent of work to be performed. The plan includes (1) risk assessment procedures, (2) further audit procedures at the assertion level, and (3) other procedures to comply with GAAS.
Which of the following is a true statement about the required documentation in an audit performed in accordance with generally accepted auditing standards?
A documented audit plan describing the necessary procedures to be performed is required.
Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?
Determining the extent of involvement of the client's internal auditors.
Audit plans are modified to suit the circumstances of particular engagements. A complete audit plan for an engagement usually should be developed
After the auditor has obtained an understanding of existing internal control.
In planning the audit engagement, the auditor should consider each of the following
B Anticipated levels of audit risk and materiality.
C The auditor's independence.
D Risks of material misstatement due to fraud.
Financial statement audit plans usually should be developed
After the auditor has established the overall audit strategy.
The acceptable level of detection risk is inversely related to the`
Assurance provided by substantive procedures
the acceptable detection risk is inversely related to the assessed risks of material misstatement. As the RMMs increase, the acceptable detection risk decreases, and the auditor requires more persuasive audit evidence.
When expressing an unmodified opinion, the auditor who evaluates the audit findings should determine whether
Uncorrected misstatements are material.
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?
The entity's year-to-date financial results and position.
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